Investors are always looking for growth in small-cap stocks like GKS GieKSa Katowice Spólka Akcyjna (WSE:GKS), with a market cap of ZŁ12.78M. However, an important fact which most ignore is: how financially healthy is the business? Since GKS is loss-making right now, it’s essential to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into GKS here.
Does GKS generate an acceptable amount of cash through operations?
GKS has built up its total debt levels in the last twelve months, from ZŁ500.00K to ZŁ1.98M , which is made up of current and long term debt. With this increase in debt, GKS currently has ZŁ599.86K remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can examine some of GKS’s operating efficiency ratios such as ROA here.
Can GKS meet its short-term obligations with the cash in hand?
With current liabilities at ZŁ5.16M, the company is not able to meet these obligations given the level of current assets of ZŁ2.37M, with a current ratio of 0.46x below the prudent level of 3x.
Does GKS face the risk of succumbing to its debt-load?
With debt reaching 71.03% of equity, GKS may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since GKS 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:
GKS’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. Furthermore, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how GKS has been performing in the past. I suggest you continue to research GKS GieKSa Katowice Spólka Akcyjna to get a better picture of the stock by looking at: