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Investors are always looking for growth in small-cap stocks like Bio Planet SA. (WSE:BIP), with a market cap of ZŁ20.44M. However, an important fact which most ignore is: how financially healthy is the business? Consumer Retailing businesses operating in the environment facing headwinds from current disruption, even ones that are profitable, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is vital. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into BIP here.
Does BIP generate an acceptable amount of cash through operations?
BIP’s debt levels have fallen from ZŁ17.12M to ZŁ9.36M over the last 12 months , which is made up of current and long term debt. With this reduction in debt, BIP currently has ZŁ392.00K remaining in cash and short-term investments for investing into the business. Additionally, BIP has produced cash from operations of ZŁ783.00K in the last twelve months, leading to an operating cash to total debt ratio of 8.37%, signalling that BIP’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In BIP’s case, it is able to generate 0.084x cash from its debt capital.
Can BIP pay its short-term liabilities?
With current liabilities at ZŁ26.88M, the company has been able to meet these obligations given the level of current assets of ZŁ27.35M, with a current ratio of 1.02x. Usually, for Consumer Retailing 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.
Is BIP’s debt level acceptable?
With a debt-to-equity ratio of 86.39%, BIP 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. We can test if BIP’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For BIP, the ratio of 2.37x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as BIP’s low interest coverage already puts the company at higher risk of default.
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At its current level of cash flow coverage, BIP has room for improvement to better cushion for events which may require debt repayment. Though, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for BIP’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Bio Planet to get a better picture of the stock by looking at: