While small-cap stocks, such as Rafako SA (WSE:RFK) with its market cap of zł479.14m, 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 vital to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into RFK here.
How does RFK’s operating cash flow stack up against its debt?
RFK has shrunken its total debt levels in the last twelve months, from zł152.69m to zł103.28m , which is mainly comprised of near term debt. With this reduction in debt, the current cash and short-term investment levels stands at zł247.76m 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. For this article’s sake, I won’t be looking at this today, but you can assess 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 zł603.10m, it appears that the company has been able to meet these commitments with a current assets level of zł991.91m, leading to a 1.64x current account ratio. 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 RFK’s debt level acceptable?RFK’s level of debt is appropriate relative to its total equity, at 20.13%. RFK is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for RFK, and the company also has the ability and headroom to increase debt if needed going forward.
Although RFK’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how RFK has been performing in the past. I recommend you 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.
- Historical Performance: What has RFK’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.