Eko Export SA (WSE:EEX) is a small-cap stock with a market capitalization of zł59.58m. 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 EEX is not presently profitable, it’s essential to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into EEX here.
How does EEX’s operating cash flow stack up against its debt?
EEX’s debt levels have fallen from zł28.55m to zł15.72m over the last 12 months , which is made up of current and long term debt. With this debt payback, EEX currently has zł228.80k remaining in cash and short-term investments for investing into the business. Additionally, EEX has produced cash from operations of zł1.21m during the same period of time, leading to an operating cash to total debt ratio of 7.67%, meaning that EEX’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In EEX’s case, it is able to generate 0.077x cash from its debt capital.
Can EEX meet its short-term obligations with the cash in hand?
Looking at EEX’s most recent zł14.40m liabilities, it seems that the business is not able to meet these obligations given the level of current assets of zł13.57m, with a current ratio of 0.94x below the prudent level of 3x.
Can EEX service its debt comfortably?
EEX’s level of debt is appropriate relative to its total equity, at 23.95%. This range is considered safe as EEX is not taking on too much debt obligation, which may be constraining for future growth. EEX’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.Next Steps:
EEX’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure EEX has company-specific issues impacting its capital structure decisions. You should continue to research Eko Export to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for EEX’s future growth? Take a look at our free research report of analyst consensus for EEX’s outlook.
- Valuation: What is EEX 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 EEX 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.