While small-cap stocks, such as Technical Olympic SA. (ATSE:OLYMP) with its market cap of €80.57M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since OLYMP is loss-making right now, it’s vital 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. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into OLYMP here.
Does OLYMP generate enough cash through operations?
Over the past year, OLYMP has ramped up its debt from €18.81M to €30.82M , which comprises of short- and long-term debt. With this growth in debt, OLYMP currently has €1.46M remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can assess some of OLYMP’s operating efficiency ratios such as ROA here.
Can OLYMP pay its short-term liabilities?
With current liabilities at €63.83M, the company has not been able to meet these commitments with a current assets level of €53.91M, leading to a 0.84x current account ratio. which is under the appropriate industry ratio of 3x.
Does OLYMP face the risk of succumbing to its debt-load?
OLYMP’s level of debt is appropriate relative to its total equity, at 10.64%. This range is considered safe as OLYMP is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for OLYMP, and the company also has the ability and headroom to increase debt if needed going forward.Next Steps:
Although OLYMP’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. Furthermore, 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 OLYMP’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Technical Olympic to get a better picture of the stock by looking at:
- 1. Valuation: What is OLYMP 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 OLYMP is currently mispriced by the market.
- 2. Historical Performance: What has OLYMP’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.
- 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.