Investors are always looking for growth in small-cap stocks like Compagnia Immobiliare Azionaria Sp.A. (BIT:CIA), with a market cap of €16.57M. However, an important fact which most ignore is: how financially healthy is the business? Given that CIA is not presently profitable, it’s vital to evaluate the current state of its operations and pathway to profitability. 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 CIA here.
How does CIA’s operating cash flow stack up against its debt?
CIA’s debt levels have fallen from €47.16M to €44.61M over the last 12 months , which comprises of short- and long-term debt. With this debt payback, the current cash and short-term investment levels stands at €466.00K , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of CIA’s operating efficiency ratios such as ROA here.
Can CIA pay its short-term liabilities?
Looking at CIA’s most recent €25.19M liabilities, it appears that the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.96x, which is below the prudent industry ratio of 3x.
Is CIA’s debt level acceptable?
Since total debt levels have outpaced equities, CIA is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since CIA is presently unprofitable, 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:
CIA’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. 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 CIA has company-specific issues impacting its capital structure decisions. I recommend you continue to research Compagnia Immobiliare Azionaria to get a more holistic view of the stock by looking at: