EAG-Beteiligungs Aktiengesellschaft (WBAG:EAGB) is a small-cap stock with a market capitalization of €53.54M. 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? Given that EAGB is not presently profitable, it’s vital to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into EAGB here.
How does EAGB’s operating cash flow stack up against its debt?
EAGB has sustained its debt level by about €134.12M over the last 12 months – this includes both the current and long-term debt. At this current level of debt, EAGB’s cash and short-term investments stands at €14.17M for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of EAGB’s operating efficiency ratios such as ROA here.
Does EAGB’s liquid assets cover its short-term commitments?
With current liabilities at €151.06M, it appears that the company is not able to meet these obligations given the level of current assets of €97.17M, with a current ratio of 0.64x below the prudent level of 3x.
Can EAGB service its debt comfortably?With total debt exceeding equities, EAGB is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since EAGB is currently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
With a high level of debt on its balance sheet, EAGB could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for EAGB to increase its operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven’t considered other factors such as how EAGB has been performing in the past. I recommend you continue to research EAG-Beteiligungs to get a more holistic view of the stock by looking at the areas below. Just a heads up – to access some parts of the Simply Wall St research tool you might be asked to create a free account, but it takes just one click and the information they provide is definitely worth it in my opinion.
- 1. Historical Performance: What has EAGB’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 EAGB’s historicals for more clarity.
- 2. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore a free list of these great stocks here.