Energoinstal SA (WSE:ENI) is a small-cap stock with a market capitalization of zł14.22m. 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? Given that ENI is not presently profitable, it’s vital to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, since I only look at basic financial figures, I suggest you dig deeper yourself into ENI here.
How much cash does ENI generate through its operations?
Over the past year, ENI has reduced its debt from zł133.03m to zł21.11m , which comprises of short- and long-term debt. With this debt payback, ENI’s cash and short-term investments stands at zł19.11m for investing into the business. Moreover, ENI has produced zł75.66m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 358.42%, indicating that ENI’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires a positive net income. In ENI’s case, it is able to generate 3.58x cash from its debt capital.
Can ENI pay its short-term liabilities?
With current liabilities at zł108.41m, the company has been able to meet these commitments with a current assets level of zł132.30m, leading to a 1.22x current account ratio. Usually, for Machinery companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does ENI face the risk of succumbing to its debt-load?With debt at 18.04% of equity, ENI may be thought of as appropriately levered. ENI is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. ENI’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
ENI has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure ENI has company-specific issues impacting its capital structure decisions. I recommend you continue to research Energoinstal to get a better picture of the stock by looking at:
- Valuation: What is ENI 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 ENI is currently mispriced by the market.
- Historical Performance: What has ENI’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.