Polmed SA (WSE:POM) is a small-cap stock with a market capitalization of zł83.5m. 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? Healthcare companies, even ones that are profitable, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is vital. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into POM here.
How does POM’s operating cash flow stack up against its debt?
POM’s debt level has been constant at around zł4.9m over the previous year comprising of short- and long-term debt. At this current level of debt, POM’s cash and short-term investments stands at zł11.7m for investing into the business. Moreover, POM has produced cash from operations of zł12.0m during the same period of time, leading to an operating cash to total debt ratio of 247%, indicating that POM’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In POM’s case, it is able to generate 2.47x cash from its debt capital.
Can POM meet its short-term obligations with the cash in hand?
With current liabilities at zł16.7m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.77x. Generally, for Healthcare companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can POM service its debt comfortably?POM’s level of debt is appropriate relative to its total equity, at 10.6%. POM is not taking on too much debt commitment, which may be constraining for future growth. We can test if POM’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For POM, the ratio of 138x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving POM ample headroom to grow its debt facilities.
POM’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for POM’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Polmed to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for POM’s future growth? Take a look at our free research report of analyst consensus for POM’s outlook.
- Valuation: What is POM 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 POM 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.
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 firstname.lastname@example.org.