Investors are always looking for growth in small-cap stocks like Eko Export SA. (WSE:EEX), with a market cap of ZŁ50.97M. However, an important fact which most ignore is: how financially healthy is the business? Since EEX is loss-making right now, it’s essential 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. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into EEX here.
Does EEX generate an acceptable amount of cash through operations?
EEX has built up its total debt levels in the last twelve months, from ZŁ26.50M to ZŁ28.27M , which comprises of short- and long-term debt. With this rise in debt, EEX’s cash and short-term investments stands at ZŁ7.50M , ready to deploy into the business. On top of this, EEX has produced cash from operations of ZŁ3.70M during the same period of time, leading to an operating cash to total debt ratio of 13.09%, indicating that EEX’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational 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 0.13x cash from its debt capital.
Can EEX pay its short-term liabilities?
Looking at EEX’s most recent ZŁ23.06M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.33x. For Chemicals companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can EEX service its debt comfortably?With debt at 31.23% of equity, EEX may be thought of as appropriately levered. EEX is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with EEX, and the company has plenty of headroom and ability to raise debt should it need to in the future.
EEX’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure EEX has company-specific issues impacting its capital structure decisions. I suggest you continue to research Eko Export to get a more holistic view 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.