Investors are always looking for growth in small-cap stocks like Elve SA. (ATSE:ELBE), with a market cap of €8.33M. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into ELBE here.
How does ELBE’s operating cash flow stack up against its debt?
ELBE has built up its total debt levels in the last twelve months, from €410.43K to €1.89M , which is made up of current and long term debt. With this increase in debt, ELBE currently has €6.34M remaining in cash and short-term investments , ready to deploy into the business. Additionally, ELBE has generated cash from operations of €2.42M in the last twelve months, leading to an operating cash to total debt ratio of 127.86%, meaning that ELBE’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In ELBE’s case, it is able to generate 1.28x cash from its debt capital.
Can ELBE pay its short-term liabilities?
With current liabilities at €10.96M, it seems that the business has been able to meet these obligations given the level of current assets of €17.79M, with a current ratio of 1.62x. For Luxury companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does ELBE face the risk of succumbing to its debt-load?With debt at 7.78% of equity, ELBE may be thought of as having low leverage. This range is considered safe as ELBE is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
ELBE’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, 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 ELBE’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Elve to get a more holistic view of the stock by looking at:
- 1. Valuation: What is ELBE 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 ELBE is currently mispriced by the market.
- 2. Historical Performance: What has ELBE’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.