While small-cap stocks, such as Rafako S.A. (WSE:RFK) with its market cap of zł214m, 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 RFK is loss-making right now, it’s essential 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. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into RFK here.
Does RFK produce enough cash relative to debt?
RFK’s debt levels surged from zł87m to zł116m over the last 12 months , which includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at zł196m for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 examine some of RFK’s operating efficiency ratios such as ROA here.
Does RFK’s liquid assets cover its short-term commitments?
With current liabilities at zł539m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.71x. 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 RFK face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 20%, RFK’s debt level may be seen as prudent. This range is considered safe as RFK is not taking on too much debt obligation, which may be constraining for future growth. Investors’ risk associated with debt is very low with RFK, and the company has plenty of headroom and ability to raise debt should it need to in the future.
RFK has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for RFK’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Rafako to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for RFK’s future growth? Take a look at our free research report of analyst consensus for RFK’s outlook.
- Valuation: What is RFK 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 RFK is currently mispriced by the market.
- 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.