Is BRAIN Biotechnology Research and Information Network AG's (FRA:BNN) Balance Sheet Strong Enough To Weather A Storm?

BRAIN Biotechnology Research and Information Network AG (FRA:BNN) is a small-cap stock with a market capitalization of €397.23m. 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 BNN is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, this commentary is still very high-level, so I suggest you dig deeper yourself into BNN here.

Does BNN produce enough cash relative to debt?

BNN has increased its debt level by about €5.09m over the last 12 months made up of current and long term debt. With this growth in debt, BNN's cash and short-term investments stands at €28.86m for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn't be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of BNN’s operating efficiency ratios such as ROA here.

Does BNN’s liquid assets cover its short-term commitments?

At the current liabilities level of €12.95m liabilities, the company has been able to meet these commitments with a current assets level of €44.36m, leading to a 3.43x current account ratio. Though, anything above 3x is considered high and could mean that BNN has too much idle capital in low-earning investments.

Is BNN’s debt level acceptable?

With a debt-to-equity ratio of 15.80%, BNN's debt level may be seen as prudent. This range is considered safe as BNN is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for BNN, and the company also has the ability and headroom to increase debt if needed going forward.

Next Steps:

Although BNN’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for BNN's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research B.R.A.I.N. Biotechnology Research and Information Network to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for BNN’s future growth? Take a look at our free research report of analyst consensus for BNN’s outlook.
2. Valuation: What is BNN 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 BNN is currently mispriced by the market.
3. 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.

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.