Yahoo Finance SLM Solutions Group AG (FRA:AM3D): Time For A Financial Health Check
Zero-debt allows substantial financial flexibility, especially for small-cap companies like SLM Solutions Group AG (FRA:AM3D), as the company does not have to adhere to strict debt covenants. However, it also faces higher cost of capital given interest cost is generally lower than equity. While AM3D has no debt on its balance sheet, it doesn’t necessarily mean it exhibits financial strength. I recommend you look at the following hurdles to assess AM3D’s financial health.
View our latest analysis for SLM Solutions Group
Does AM3D’s growth rate justify its decision for financial flexibility over lower cost of capital?
Debt funding can be cheaper than issuing new equity due to lower interest cost on debt. But the downside of having debt in a company’s balance sheet is the debtholder’s higher claim on its assets in the case of liquidation, as well as stricter capital management requirements. The lack of debt on AM3D’s balance sheet may be because it does not have access to cheap capital, or it may believe this trade-off is not worth it. Choosing financial flexibility over capital returns make sense if AM3D is a high-growth company. A revenue growth in the teens is not considered high-growth. AM3D’s revenue growth of 10% falls into this range. More capital can help the business grow faster. If AM3D is not expecting exceptional future growth, then the decision to avoid may cost shareholders in the long term.
Can AM3D meet its short-term obligations with the cash in hand?
Given zero long-term debt on its balance sheet, SLM Solutions Group has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. Looking at AM3D’s most recent €16m liabilities, the company has been able to meet these obligations given the level of current assets of €108m, with a current ratio of 6.88x. Having said that, a ratio greater than 3x may be considered as quite high, and some might argue AM3D could be holding too much capital in a low-return investment environment.
Next Steps:
AM3D is a fast-growing firm, which supports having have zero-debt and financial freedom to continue to ramp up growth. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. In the future, AM3D’s financial situation may change. I admit this is a fairly basic analysis for AM3D’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research SLM Solutions Group to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AM3D’s future growth? Take a look at our free research report of analyst consensus for AM3D’s outlook.
Historical Performance: What has AM3D’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
