Is Orbis Spólka Akcyjna’s (WSE:ORB) Balance Sheet A Threat To Its Future?

Orbis Spólka Akcyjna (WSE:ORB) is a small-cap stock with a market capitalization of ZŁ4.82B. 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? Evaluating financial health as part of your investment thesis is vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into ORB here.

How does ORB’s operating cash flow stack up against its debt?

ORB has shrunken its total debt levels in the last twelve months, from ZŁ624.44M to ZŁ542.73M , which comprises of short- and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at ZŁ214.84M for investing into the business. On top of this, ORB has generated cash from operations of ZŁ390.23M in the last twelve months, resulting in an operating cash to total debt ratio of 71.90%, meaning that ORB’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In ORB’s case, it is able to generate 0.72x cash from its debt capital.

Can ORB pay its short-term liabilities?

Looking at ORB’s most recent ZŁ289.85M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.82x. Generally, for Hospitality companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

WSE:ORB Historical Debt May 17th 18
WSE:ORB Historical Debt May 17th 18

Can ORB service its debt comfortably?

With debt at 26.89% of equity, ORB may be thought of as appropriately levered. ORB is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether ORB is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In ORB’s, case, the ratio of 34.44x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as ORB’s high interest coverage is seen as responsible and safe practice.

Next Steps:

ORB’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. 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 ORB’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Orbis Spólka Akcyjna to get a more holistic view of the stock by looking at:

  1. Historical Performance: What has ORB’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.
  2. 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.