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While small-cap stocks, such as Vogiatzoglou Systems S.A. (ATH:VOSYS) with its market cap of €14m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into VOSYS here.
How much cash does VOSYS generate through its operations?
VOSYS has built up its total debt levels in the last twelve months, from €2.5m to €2.8m , which includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at €1.8m for investing into the business. Additionally, VOSYS has generated €562k in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 20%, signalling that VOSYS’s operating cash is sufficient to cover its debt. 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?
Looking at VOSYS’s €6.8m in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of €16m, with a current ratio of 2.33x. Usually, for Trade Distributors companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning 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 may be constraining for future growth. We can check to see whether VOSYS 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 VOSYS’s, case, 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.
VOSYS has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how VOSYS has been performing in the past. I suggest you continue to research Vogiatzoglou Systems to get a better picture 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. On rare occasion, data errors may occur. Thank you for reading.