Société Française de Casinos Société Anonyme (EPA:SFCA) is a small-cap stock with a market capitalization of €7.4m. 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? So, understanding the company’s financial health becomes vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. However, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into SFCA here.
How much cash does SFCA generate through its operations?
Over the past year, SFCA has reduced its debt from €8.0m to €6.2m – this includes long-term debt. With this debt repayment, the current cash and short-term investment levels stands at €1.7m , ready to deploy into the business. Additionally, SFCA has produced €2.4m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 38%, meaning that SFCA’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In SFCA’s case, it is able to generate 0.38x cash from its debt capital.
Can SFCA pay its short-term liabilities?
At the current liabilities level of €11m, it appears that the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.75x.
Is SFCA’s debt level acceptable?
With a debt-to-equity ratio of 31%, SFCA’s debt level may be seen as prudent. SFCA is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether SFCA is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In SFCA’s, case, the ratio of 0.83x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as SFCA’s low interest coverage already puts the company at higher risk of default.
SFCA’s debt level is appropriate for a company its size. Furthermore, it is able to generate sufficient cash flow coverage, meaning it is able to put its debt in good use. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how SFCA has been performing in the past. I suggest you continue to research Société Française de Casinos Société Anonyme to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SFCA’s future growth? Take a look at our free research report of analyst consensus for SFCA’s outlook.
- Historical Performance: What has SFCA’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.
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 email@example.com.