AS Brivais vilnis (MUN:QBV) is a small-cap stock with a market capitalization of €2.54M. 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? Since QBV is loss-making right now, it’s crucial to understand 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, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into QBV here.
Does QBV generate enough cash through operations?
QBV has sustained its debt level by about €1.83M over the last 12 months – this includes both the current and long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at under €10K, which is rather low. On top of this, QBV is only producing cash from operations of €29.47K over the same time period, resulting in an operating cash to total debt ratio of below 1x, indicating that debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for loss making companies since metrics such as return on asset (ROA) requires positive earnings. In QBV’s case, it produces less than 1x cash from its debt capital.
Does QBV’s liquid assets cover its short-term commitments?
At the current liabilities level of €1.56M liabilities, the company has been able to meet these commitments with a current assets level of €2.90M, leading to a 1.86x current account ratio. For Food 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 QBV service its debt comfortably?
QBV is a relatively highly levered company with a debt-to-equity of 91.25%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since QBV is currently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
QBV’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for QBV’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research AS Brivais vilnis to get a better picture of the stock by looking at: