Energoinstal SA (WSE:ENI) is a small-cap stock with a market capitalization of zł16m. 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 crucial to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, since I only look at basic financial figures, I recommend you dig deeper yourself into ENI here.
How much cash does ENI generate through its operations?
ENI has shrunken its total debt levels in the last twelve months, from zł29m to zł13m – this includes both the current and long-term debt. With this debt repayment, ENI currently has zł4m remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of ENI’s operating efficiency ratios such as ROA here.
Does ENI’s liquid assets cover its short-term commitments?
Looking at ENI’s most recent zł59m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.11x. For Machinery companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Does ENI face the risk of succumbing to its debt-load?
ENI’s level of debt is appropriate relative to its total equity, at 25%. ENI is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for ENI, and the company also has the ability and headroom to increase debt if needed going forward.
ENI’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how ENI has been performing in the past. I recommend you 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.