Vogiatzoglou Systems SA (ATH:VOSYS) is a small-cap stock with a market capitalization of €14m. 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? Assessing first and foremost the financial health is vital, 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. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into VOSYS here.
How much cash does VOSYS generate through its operations?
VOSYS’s debt levels surged from €3m to €3m over the last 12 months , which is made up of current and long term debt. With this growth in debt, VOSYS’s cash and short-term investments stands at €2m , ready to deploy into the business. On top of this, VOSYS has generated cash from operations of €562k over the same time period, leading to an operating cash to total debt ratio of 20%, signalling that VOSYS’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 VOSYS’s case, it is able to generate 0.2x cash from its debt capital.
Can VOSYS pay its short-term liabilities?
At the current liabilities level of €7m liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.33x. Generally, for Trade Distributors companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can VOSYS service its debt comfortably?
With debt at 19% of equity, VOSYS may be thought of as appropriately levered. VOSYS is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if VOSYS’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For VOSYS, the ratio of 11.51x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as VOSYS’s high interest coverage is seen as responsible and safe practice.
Next Steps:
Although VOSYS’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. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for VOSYS’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Vogiatzoglou Systems to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for VOSYS’s future growth? Take a look at our free research report of analyst consensus for VOSYS’s outlook.
- Valuation: What is VOSYS 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 VOSYS is currently mispriced by the market.
- 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 editorial-team@simplywallst.com.