Intracom Constructions Societe Anonyme Technical and Steel Constructions (ATSE:INKAT) is a small-cap stock with a market capitalization of €39.01M. 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? Given that INKAT is not presently profitable, it’s crucial to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into INKAT here.
Does INKAT generate enough cash through operations?
INKAT’s debt levels have fallen from €104.45M to €99.02M over the last 12 months , which is made up of current and long term debt. With this reduction in debt, the current cash and short-term investment levels stands at €14.21M , ready to deploy into the business. Additionally, INKAT has produced cash from operations of €8.25M over the same time period, leading to an operating cash to total debt ratio of 8.33%, signalling that INKAT’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In INKAT’s case, it is able to generate 0.083x cash from its debt capital.
Can INKAT pay its short-term liabilities?
At the current liabilities level of €180.80M liabilities, the company has not been able to meet these commitments with a current assets level of €178.31M, leading to a 0.99x current account ratio. which is under the appropriate industry ratio of 3x.
Does INKAT face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, INKAT 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. Though, since INKAT is presently loss-making, 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:
INKAT’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. 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 INKAT has company-specific issues impacting its capital structure decisions. You should continue to research Intracom Constructions Societe Anonyme Technical and Steel Constructions to get a more holistic view of the stock by looking at: