Zaklady Urzadzen Kotlowych Staporków SA (WSE:ZUK) is a small-cap stock with a market capitalization of zł8m. 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 ZUK is not presently profitable, it’s essential 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 ZUK here.
How much cash does ZUK generate through its operations?
ZUK’s debt levels surged from zł8m to zł16m over the last 12 months – this includes both the current and long-term debt. With this growth in debt, ZUK’s cash and short-term investments stands at zł2m for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can take a look at some of ZUK’s operating efficiency ratios such as ROA here.
Can ZUK pay its short-term liabilities?
With current liabilities at zł29m, it appears that the company may not have an easy time meeting these commitments with a current assets level of zł25m, leading to a current ratio of 0.87x.
Does ZUK face the risk of succumbing to its debt-load?
ZUK is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since ZUK is currently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
ZUK’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how ZUK has been performing in the past. You should continue to research Zaklady Urzadzen Kotlowych Staporków to get a better picture of the stock by looking at:
- Historical Performance: What has ZUK’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 firstname.lastname@example.org.