While small-cap stocks, such as Oryzon Genomics S.A. (BME:ORY) with its market cap of €134m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that ORY is not presently profitable, it’s vital to assess the current state of its operations and pathway to profitability. We’ll look at some basic checks that can form a snapshot the company’s financial strength. However, these checks don’t give you a full picture, so I’d encourage you to dig deeper yourself into ORY here.
ORY’s Debt (And Cash Flows)
ORY’s debt levels have fallen from €23m to €18m over the last 12 months , which also accounts for long term debt. With this debt repayment, ORY currently has €34m remaining in cash and short-term investments to keep the business going. Moving on, operating cash flow was negative over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can examine some of ORY’s operating efficiency ratios such as ROA here.
Does ORY’s liquid assets cover its short-term commitments?
With current liabilities at €10m, the company has been able to meet these obligations given the level of current assets of €36m, with a current ratio of 3.42x. The current ratio is calculated by dividing current assets by current liabilities. However, many consider a ratio above 3x to be high.
Is ORY’s debt level acceptable?
ORY is a relatively highly levered company with a debt-to-equity of 40%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. However, since ORY is currently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
ORY’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how ORY has been performing in the past. You should continue to research Oryzon Genomics to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ORY’s future growth? Take a look at our free research report of analyst consensus for ORY’s outlook.
- Historical Performance: What has ORY’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 our analysis for more clarity.
- 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.
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