Yahoo Finance SNC-Lavalin Group Inc. (TSE:SNC): Time For A Financial Health Check
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
SNC-Lavalin Group Inc. (TSE:SNC) is a small-cap stock with a market capitalization of CA$4.8b. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Since SNC is loss-making right now, it’s crucial to understand the current state of its operations and pathway to profitability. Let's work through some financial health checks you may wish to consider if you're interested in this stock. Nevertheless, these checks don't give you a full picture, so I’d encourage you to dig deeper yourself into SNC here.
SNC’s Debt (And Cash Flows)
SNC has built up its total debt levels in the last twelve months, from CA$3.4b to CA$4.7b , which includes long-term debt. With this rise in debt, SNC's cash and short-term investments stands at CA$864m , ready to be used for running the business. Its negative operating cash flow means calculating cash-to-debt wouldn't be useful. For this article’s sake, I won’t be looking at this today, but you can take a look at some of SNC’s operating efficiency ratios such as ROA here.
Can SNC pay its short-term liabilities?
With current liabilities at CA$5.9b, it appears that the company may not have an easy time meeting these commitments with a current assets level of CA$4.8b, leading to a current ratio of 0.82x. The current ratio is calculated by dividing current assets by current liabilities.
Does SNC face the risk of succumbing to its debt-load?
Since total debt levels exceed equity, SNC is a highly leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. Though, since SNC is currently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
Although SNC’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven't considered other factors such as how SNC has been performing in the past. You should continue to research SNC-Lavalin Group to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for SNC’s future growth? Take a look at our free research report of analyst consensus for SNC’s outlook.
Valuation: What is SNC worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether SNC is currently mispriced by the market.
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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
