Budapesti Ingatlan Hasznosítási és Fejlesztési Nyrt (BUSE:BIF) is a small-cap stock with a market capitalization of FT39.84B. 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 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. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into BIF here.
Does BIF generate an acceptable amount of cash through operations?
Over the past year, BIF has ramped up its debt from FT2.57B to FT9.38B , which comprises of short- and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at FT1.79B , ready to deploy into the business. Additionally, BIF has generated cash from operations of FT2.03B over the same time period, resulting in an operating cash to total debt ratio of 21.67%, indicating that BIF’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 BIF’s case, it is able to generate 0.22x cash from its debt capital.
Can BIF meet its short-term obligations with the cash in hand?
Looking at BIF’s most recent FT1.21B liabilities, it appears that the company has been able to meet these commitments with a current assets level of FT3.86B, leading to a 3.2x current account ratio. Though, anything above 3x is considered high and could mean that BIF has too much idle capital in low-earning investments.
Does BIF face the risk of succumbing to its debt-load?
With debt at 36.38% of equity, BIF may be thought of as appropriately levered. This range is considered safe as BIF is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if BIF’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 BIF, the ratio of 26.56x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving BIF ample headroom to grow its debt facilities.Next Steps:
Although BIF’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 an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for BIF’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Budapesti Ingatlan Hasznosítási és Fejlesztési Nyrt to get a better picture of the stock by looking at:
- Historical Performance: What has BIF’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.
- 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.