Today, we decided to bring you an analysis of the current ratio of the Croatian Blue chips, based on the H1 2022 results.
First of all, what is a current ratio? The current ratio is what’s called a „liquidity ratio“, meaning in essence, it indicates how well a company is able to pay its short-term obligations, meaning within one year. It is calculated by looking at the balance sheet of a company and dividing its current assets by short-term liabilities. This means in turn, it can show us how a company can use its current assets to satisfy any current debts it might have.
It is important to put this ratio into context, however. Even though a high ratio (more than 1) does indicate that a company has more current assets than short-term liabilities, taking the industry and the peer group of a company into account matters as well. Different industries and peer groups have different current ratios, so if a company has a lower current ratio than the industrial average it operates in, there might be a higher risk of trouble down the road. At the same time, a company that has a current ratio that is a lot higher compared to its industrial average might also mean that the company’s management is not using its assets in the most efficient way.
Because of this need for industry-specific comparison, comparing the current ratio across industries does not make much sense. With that out of the way, let’s take a look at the current ratio of the Croatian Blue chips, based on the H1 2022 results.
Current ratio of the CROBEX10 Constituents (H1 2022 vs. H1 2021)
Out of all the observed companies, Hrvatski Telekom has the highest current ratio, at 3.15x. Compared to the same period last year, this represents an increase of 10%, which can mainly be attributed to the fact that HT has managed to moderately decrease its short-term liabilities, from HRK 1.63bn to HRK 1.6bn, while current assets reported a 5% YoY increase.
Next up, we have Ericsson NT, with a current ratio of 2.25x, representing an 11.8% increase YoY. The main contributor to this growth is the decrease in short-term liabilities, which declined by 9% and amounted to HRK 455k (from HRK 500k).
Next up, we come to Podravka, and considering we also have Atlantic Grupa which operates in the same industry, we can compare both of these companies. Podravka has a current ratio of 2.24x, while Atlantic Grupa has 1.43x. As compared to H1 2021, this represents a change of -8.2% and +5.2%%, respectively. This would mean that Podravka does have more current assets compared to its short-term liabilities, and would mean that in case they needed to, they could cover them more quickly. Podravka reported a decrease in the current ratio as growth in liabilities (+11%) outpaced a very slight growth in current assets amounting to 2%. Atlantic improved its liquidity measure due to moderate growth in current assets (+14.9%), which was driven by more or less each component. Considering both of these companies are actively looking for new ways of expanding through mergers and acquisitions, the focus on further reducing any form of debt is expected.
Next up, we have Atlantska Plovidba, the Company which experienced the most significant change in its current ratio is Atlantska Plovidba, which increased it by more than 2.5x YoY, with a current ratio amounting to 2.4x. This increase was driven by the strong business results of the Company, and as it operates in the asset-heavy industry (shipping), which has experienced a lot of demand in 2021 and the 1st half of 2022. This has allowed the Company to build a significant cash position, increasing it from HRK 91.5m to HRK 258.2m. This led to an increase in the current assets of 197% YoY, while the Company increased its short-term liabilities just slightly by 12.7% YoY.
Following Atlantska Plovidba, we have Končar, which has a current ratio of 2.14x, representing a decrease of -18.1% YoY, due to an increase in short-term liabilities of 74.1%. Next up, we can take a look at Valamar Riviera, Adris, and Arena Hospitality Group, which all (at least partly in the case of Adris) operate in the tourism industry, so comparing their ratios makes sense. Although, we note that the picture for Adris is relatively skewed due to the nature of Adris’s business and consolidation of its insurance segment, which disrupts both sides of its balance sheet- current assets and short-term liabilities. Nevertheless, Valamar has a current ratio of 1.32x, Adris 1.16x, and Arena has 0.8x. This represents a change of +13.3%, -6.2%, and -36.7%, respectively. The sharp increase experienced by Valamar can be attributed to the increase in current assets (+61.7% YoY), or more specifically, an increase in cash and cash equivalents (+47.3% YoY), outpacing growth in short-term liabilities (42.7%). Considering that the Company operates in the tourism industry which was already severely affected by the COVID-19 pandemic, this makes sense, as the Company is increasing its cash position to mitigate any future risks. At the same time, its subsidiary Imperial Riviera had a capital increase, where co-owner with Valamar PBZ-CO pension fund increased share capital by payment of cash, while Valamar increased it by transferring land pertaining to Dubrovnik hotels that Valamar sold to Imperial. As Valamar is consolidating Imperial, Valamar’s consolidated results liquidity position also improved. On the other hand, the decrease experienced by Arena can be attributed to an increase in liabilities, (+46% YoY), while at the same time, the current assets decreased, mainly due to the lower cash position (-28.2% YoY). Arena is investing a lot and 50% of all its investments are funded by debts so its debt position also increased. This is a very good move in the period of low-interest rates, where Arena is fixing its rates at lows.
