What does E Pairis S.A.’s (ATH:PAIR) Balance Sheet Tell Us About Its Future?

Investors are always looking for growth in small-cap stocks like E Pairis S.A. (ATSE:PAIR), with a market cap of €1.34M. However, an important fact which most ignore is: how financially healthy is the business? Given that PAIR is not presently profitable, it’s essential to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into PAIR here.

How does PAIR’s operating cash flow stack up against its debt?

PAIR’s debt level has been constant at around €10.14M over the previous year . At this current level of debt, PAIR currently has €40.77K remaining in cash and short-term investments for investing into the business. Additionally, PAIR has generated cash from operations of €293.48K over the same time period, resulting in an operating cash to total debt ratio of 2.89%, indicating that PAIR’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable companies since metrics such as return on asset (ROA) requires positive earnings. In PAIR’s case, it is able to generate 0.029x cash from its debt capital.

Can PAIR meet its short-term obligations with the cash in hand?

At the current liabilities level of €14.61M liabilities, it seems that the business has not been able to meet these commitments with a current assets level of €8.54M, leading to a 0.58x current account ratio. which is under the appropriate industry ratio of 3x.

ATSE:PAIR Historical Debt Mar 13th 18
ATSE:PAIR Historical Debt Mar 13th 18

Is PAIR’s debt level acceptable?

Since total debt levels have outpaced equities, PAIR is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since PAIR is presently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

PAIR’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for PAIR’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research E. Pairis to get a better picture of the stock by looking at: