While small-cap stocks, such as SuperSonic Imagine SA (EPA:SSI) with its market cap of €48.4m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Medical Equipment industry, especially ones that are currently loss-making, tend to be high risk. Evaluating financial health as part of your investment thesis is crucial. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into SSI here.
How much cash does SSI generate through its operations?
Over the past year, SSI has ramped up its debt from €8.2m to €18.3m – this includes both the current and long-term debt. With this rise in debt, SSI currently has €19.0m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 take a look at some of SSI’s operating efficiency ratios such as ROA here.
Does SSI’s liquid assets cover its short-term commitments?
With current liabilities at €17.9m, it appears that the company has been able to meet these commitments with a current assets level of €37.1m, leading to a 2.07x current account ratio. Generally, for Medical Equipment companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can SSI service its debt comfortably?
SSI is a relatively highly levered company with a debt-to-equity of 71.6%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since SSI is presently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
SSI’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. 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 SSI's financial health. Other important fundamentals need to be considered alongside. You should continue to research SuperSonic Imagine to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SSI’s future growth? Take a look at our free research report of analyst consensus for SSI’s outlook.
- Historical Performance: What has SSI'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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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.
