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Investors are always looking for growth in small-cap stocks like Eniro AB (publ) (OM:ENRO), with a market cap of KR332.52M. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. However, I know these factors are very high-level, so I recommend you dig deeper yourself into ENRO here.
Does ENRO generate enough cash through operations?
ENRO has shrunken its total debt levels in the last twelve months, from KR1.67B to KR864.00M – this includes both the current and long-term debt. With this reduction in debt, ENRO currently has KR51.00M remaining in cash and short-term investments , ready to deploy into the business. On top of this, ENRO has produced KR5.00M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 0.58%, indicating that ENRO’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In ENRO’s case, it is able to generate 0.0058x cash from its debt capital.
Can ENRO pay its short-term liabilities?
Looking at ENRO’s most recent KR759.00M liabilities, it seems that the business is not able to meet these obligations given the level of current assets of KR321.00M, with a current ratio of 0.42x below the prudent level of 3x.
Does ENRO face the risk of succumbing to its debt-load?
With debt reaching 80.25% of equity, ENRO 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.
Next Steps:
ENRO’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. I admit this is a fairly basic analysis for ENRO’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Eniro to get a better picture of the stock by looking at:
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Valuation: What is ENRO worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ENRO is currently mispriced by the market.
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Historical Performance: What has ENRO’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.