Qliro Group AB (publ) (STO:QLRO) is a small-cap stock with a market capitalization of kr1.6b. 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? Given that QLRO is not presently profitable, it’s essential to evaluate the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company's balance sheet strength. However, these checks don't give you a full picture, so I’d encourage you to dig deeper yourself into QLRO here.
Does QLRO Produce Much Cash Relative To Its Debt?
Over the past year, QLRO has ramped up its debt from kr580m to kr711m – this includes long-term debt. With this rise in debt, QLRO's cash and short-term investments stands at kr670m , ready to be used for running the business. Its negative operating cash flow means calculating cash-to-debt wouldn't be useful. For this article’s sake, I won’t be looking at this today, but you can assess some of QLRO’s operating efficiency ratios such as ROA here.
Does QLRO’s liquid assets cover its short-term commitments?
Looking at QLRO’s kr1.7b in current liabilities, the company has been able to meet these obligations given the level of current assets of kr3.0b, with a current ratio of 1.72x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Online Retail 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 QLRO service its debt comfortably?
QLRO is a relatively highly levered company with a debt-to-equity of 71%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. However, since QLRO is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
QLRO’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. Since there is also no concerns around QLRO's liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I'm sure QLRO has company-specific issues impacting its capital structure decisions. I suggest you continue to research Qliro Group to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for QLRO’s future growth? Take a look at our free research report of analyst consensus for QLRO’s outlook.
- Valuation: What is QLRO 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 QLRO 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.