Investors are always looking for growth in small-cap stocks like Polarcus Limited (OB:PLCS), with a market cap of øre1.34b. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Energy Services industry, especially ones that are currently loss-making, are more likely to be higher risk. So, understanding the company’s financial health becomes essential. 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 suggest you dig deeper yourself into PLCS here.
Does PLCS produce enough cash relative to debt?
PLCS’s debt level has been constant at around øre302.92m over the previous year made up of current and long term debt. At this current level of debt, PLCS’s cash and short-term investments stands at øre26.07m , ready to deploy into the business. Moreover, PLCS has produced cash from operations of øre34.06m in the last twelve months, leading to an operating cash to total debt ratio of 11.25%, meaning that PLCS’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires positive earnings. In PLCS’s case, it is able to generate 0.11x cash from its debt capital.
Can PLCS pay its short-term liabilities?
Looking at PLCS’s most recent øre349.55m liabilities, the company has not been able to meet these commitments with a current assets level of øre68.36m, leading to a 0.2x current account ratio. which is under the appropriate industry ratio of 3x.
Can PLCS service its debt comfortably?PLCS is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since PLCS is currently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
PLCS’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. Keep in mind I haven’t considered other factors such as how PLCS has been performing in the past. You should continue to research Polarcus to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PLCS’s future growth? Take a look at our free research report of analyst consensus for PLCS’s outlook.
- Historical Performance: What has PLCS’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.