Investors are always looking for growth in small-cap stocks like Unibios Holdings S.A. (ATH:BIOSK), with a market cap of €1.0m. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into BIOSK here.
Does BIOSK produce enough cash relative to debt?
Over the past year, BIOSK has ramped up its debt from €6.4m to €9.0m – this includes long-term debt. With this increase in debt, the current cash and short-term investment levels stands at €343k for investing 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 BIOSK’s operating efficiency ratios such as ROA here.
Does BIOSK’s liquid assets cover its short-term commitments?
Looking at BIOSK’s €9.0m in current liabilities, it seems that the business arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.85x.
Can BIOSK service its debt comfortably?
With total debt exceeding equities, BIOSK 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. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In BIOSK’s case, the ratio of 0.54x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as BIOSK’s low interest coverage already puts the company at higher risk of default.
BIOSK’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. However, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for BIOSK’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Unibios Holdings to get a more holistic view of the stock by looking at:
- Historical Performance: What has BIOSK’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.
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