While small-cap stocks, such as Energoinstal SA. (WSE:ENI) with its market cap of ZŁ15.30M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since ENI is loss-making right now, it’s crucial 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. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into ENI here.
Does ENI generate an acceptable amount of cash through operations?
ENI’s debt levels have fallen from ZŁ133.03M to ZŁ16.00M over the last 12 months – this includes both the current and long-term debt. With this debt repayment, ENI’s cash and short-term investments stands at ZŁ19.11M for investing into the business. Additionally, ENI has produced cash from operations of ZŁ75.66M during the same period of time, resulting in an operating cash to total debt ratio of 472.86%, signalling that ENI’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for loss making companies since metrics such as return on asset (ROA) requires positive earnings. In ENI’s case, it is able to generate 4.73x cash from its debt capital.
Can ENI meet its short-term obligations with the cash in hand?
Looking at ENI’s most recent ZŁ108.41M liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.22x. For Machinery companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is ENI’s debt level acceptable?ENI’s level of debt is appropriate relative to its total equity, at 22.15%. This range is considered safe as ENI is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with ENI, and the company has plenty of 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 an appropriate 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. You should continue to research Energoinstal to get a more holistic view 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.