Przetwórstwo Tworzyw Sztucznych Plast-Box SA. (WSE:PLX) is a small-cap stock with a market capitalization of ZŁ90.17M. 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? Assessing first and foremost the financial health is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into PLX here.
Does PLX generate an acceptable amount of cash through operations?
PLX’s debt level has been constant at around ZŁ25.84M over the previous year comprising of short- and long-term debt. At this current level of debt, PLX currently has ZŁ1.34M remaining in cash and short-term investments , ready to deploy into the business. Moreover, PLX has produced cash from operations of ZŁ10.33M during the same period of time, leading to an operating cash to total debt ratio of 39.96%, signalling that PLX’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In PLX’s case, it is able to generate 0.4x cash from its debt capital.
Does PLX’s liquid assets cover its short-term commitments?
With current liabilities at ZŁ52.58M, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.17x. For Packaging companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Does PLX face the risk of succumbing to its debt-load?PLX is a relatively highly levered company with a debt-to-equity of 52.15%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether PLX 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 PLX’s, case, the ratio of 10.45x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as PLX’s high interest coverage is seen as responsible and safe practice.
PLX’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for PLX’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Przetwórstwo Tworzyw Sztucznych Plast-Box to get a better picture of the small-cap by looking at:
- Historical Performance: What has PLX’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.