Investors are always looking for growth in small-cap stocks like Energoinstal S.A. (WSE:ENI), with a market cap of zł17m. However, an important fact which most ignore is: how financially healthy is the business? Since ENI is loss-making right now, it’s vital 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. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into ENI here.
Does ENI produce enough cash relative to debt?
ENI has shrunken its total debt levels in the last twelve months, from zł35m to zł7.6m – this includes long-term debt. With this debt repayment, ENI currently has zł2.5m remaining in cash and short-term investments , ready to deploy into the business. Moreover, ENI has generated zł7.3m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 97%, indicating that ENI’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making businesses since metrics such as return on asset (ROA) requires positive earnings. In ENI’s case, it is able to generate 0.97x cash from its debt capital.
Does ENI’s liquid assets cover its short-term commitments?
At the current liabilities level of zł42m, it seems that the business has been able to meet these commitments with a current assets level of zł53m, leading to a 1.26x current account ratio. For Machinery companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can ENI service its debt comfortably?
ENI’s level of debt is appropriate relative to its total equity, at 14%. ENI is not taking on too much debt commitment, which may be constraining for future growth. 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 a safe level. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how ENI has been performing in the past. I suggest 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.
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