Investors are always looking for growth in small-cap stocks like Eko Export SA (WSE:EEX), with a market cap of zł37m. However, an important fact which most ignore is: how financially healthy is the business? Since EEX is loss-making right now, it’s crucial to evaluate 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, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into EEX here.
How much cash does EEX generate through its operations?
EEX’s debt level has been constant at around zł21m over the previous year – this includes both the current and long-term debt. At this current level of debt, EEX’s cash and short-term investments stands at zł279k for investing into the business. On top of this, EEX has produced cash from operations of zł3m in the last twelve months, resulting in an operating cash to total debt ratio of 15%, signalling that EEX’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires a positive net income. In EEX’s case, it is able to generate 0.15x cash from its debt capital.
Can EEX pay its short-term liabilities?
With current liabilities at zł18m, it seems that the business arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.78x.
Does EEX face the risk of succumbing to its debt-load?
With debt at 34% of equity, EEX may be thought of as appropriately levered. This range is considered safe as EEX is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for EEX, and the company also has the ability and headroom to increase debt if needed going forward.
EEX’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. Furthermore, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for EEX’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Eko Export to get a better picture of the stock by looking at:
- Historical Performance: What has EEX’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.
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