Is OT Logistics SA.'s (WSE:OTS) Balance Sheet A Threat To Its Future?

While small-cap stocks, such as OT Logistics SA. (WSE:OTS) with its market cap of ZŁ249.57M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into OTS here.

Does OTS generate enough cash through operations?

Over the past year, OTS has ramped up its debt from ZŁ251.44M to ZŁ309.81M , which is made up of current and long term debt. With this growth in debt, OTS currently has ZŁ135.72M remaining in cash and short-term investments for investing into the business. On top of this, OTS has generated cash from operations of ZŁ57.71M in the last twelve months, leading to an operating cash to total debt ratio of 18.63%, meaning that OTS’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In OTS’s case, it is able to generate 0.19x cash from its debt capital.

Does OTS’s liquid assets cover its short-term commitments?

Looking at OTS’s most recent ZŁ349.48M liabilities, it seems that the business has not been able to meet these commitments with a current assets level of ZŁ296.00M, leading to a 0.85x current account ratio. which is under the appropriate industry ratio of 3x.

Does OTS face the risk of succumbing to its debt-load?

With a debt-to-equity ratio of 98.51%, OTS can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In OTS's case, the ratio of 0.38x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.

Next Steps:

OTS’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I'm sure OTS has company-specific issues impacting its capital structure decisions. You should continue to research OT Logistics to get a more holistic view of the stock by looking at:

• 1. Historical Performance: What has OTS'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.
• 2. 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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.