Elix Vintage Residencial Socimi SA (BME:YVRS) is a small-cap stock with a market capitalization of €50m. 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 YVRS is loss-making right now, it’s essential to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into YVRS here.
How does YVRS’s operating cash flow stack up against its debt?
YVRS’s debt level has been constant at around €1.1m over the previous year , which is mainly comprised of near term debt. At this stable level of debt, YVRS currently has €1.8m remaining in cash and short-term investments for investing 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 YVRS’s operating efficiency ratios such as ROA here.
Can YVRS pay its short-term liabilities?
Looking at YVRS’s €13m in current liabilities, it appears that the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.15x.
Does YVRS face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 52%, YVRS 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. However, since YVRS is presently loss-making, sustainability of its current state of operations becomes a concern. 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:
Although YVRS’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure YVRS has company-specific issues impacting its capital structure decisions. I recommend you continue to research Elix Vintage Residencial Socimi to get a better picture of the stock by looking at: