While small-cap stocks, such as Sunex S.A. (WSE:SNX) with its market cap of zł14m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Semiconductor companies, even ones that are profitable, are more likely to be higher risk. So, understanding the company’s financial health becomes vital. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into SNX here.
Does SNX produce enough cash relative to debt?
SNX has shrunken its total debt levels in the last twelve months, from zł3.2m to zł2.5m , which includes long-term debt. With this debt repayment, SNX’s cash and short-term investments stands at zł351k for investing into the business. Moreover, SNX has produced zł1.3m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 53%, meaning that SNX’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 SNX’s case, it is able to generate 0.53x cash from its debt capital.
Can SNX pay its short-term liabilities?
With current liabilities at zł20m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.14x. Usually, for Semiconductor companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can SNX service its debt comfortably?
With a debt-to-equity ratio of 11%, SNX’s debt level may be seen as prudent. This range is considered safe as SNX is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether SNX 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 SNX’s, case, the ratio of 14.46x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving SNX ample headroom to grow its debt facilities.
SNX has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, 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 SNX’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Sunex to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SNX’s future growth? Take a look at our free research report of analyst consensus for SNX’s outlook.
- Valuation: What is SNX 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 SNX 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.
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.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.