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While small-cap stocks, such as FullSix Sp.A. (BIT:FUL) with its market cap of €11.18M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Internet companies, in particular ones that run negative earnings, are inclined towards being higher risk. Assessing first and foremost the financial health is crucial. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into FUL here.
Does FUL generate enough cash through operations?
Over the past year, FUL has maintained its debt levels at around €8.70M – this includes both the current and long-term debt. At this constant level of debt, FUL’s cash and short-term investments stands at €1.79M for investing into the business. Additionally, FUL has produced cash from operations of €1.41M during the same period of time, resulting in an operating cash to total debt ratio of 16.16%, signalling that FUL’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making businesses since metrics such as return on asset (ROA) requires positive earnings. In FUL’s case, it is able to generate 0.16x cash from its debt capital.
Does FUL’s liquid assets cover its short-term commitments?
Looking at FUL’s most recent €19.08M liabilities, the company has not been able to meet these commitments with a current assets level of €16.23M, leading to a 0.85x current account ratio. which is under the appropriate industry ratio of 3x.
Can FUL service its debt comfortably?
Since total debt levels have outpaced equities, FUL is a highly 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 FUL is presently unprofitable, there’s a question of sustainability of its current operations. 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:
FUL’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. I admit this is a fairly basic analysis for FUL’s financial health. Other important fundamentals need to be considered alongside. You should continue to research FullSix to get a more holistic view of the stock by looking at: