What Investors Should Know About Triboo S.p.A.'s (BIT:TB) Financial Strength

Simply Wall St

Mon, Jun 10, 2019, 4:10 AM

While small-cap stocks, such as Triboo S.p.A. (BIT:TB) with its market cap of €51m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. The following basic checks can help you get a picture of the company's balance sheet strength. Nevertheless, this is not a comprehensive overview, so I suggest you dig deeper yourself into TB here.

TB’s Debt (And Cash Flows)

TB has built up its total debt levels in the last twelve months, from €14m to €17m , which includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at €8.5m , ready to be used for running the business. On top of this, TB has generated €13m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 77%, indicating that TB’s operating cash is sufficient to cover its debt.

Can TB meet its short-term obligations with the cash in hand?

With current liabilities at €61m, it seems that the business arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.85x. The current ratio is the number you get when you divide current assets by current liabilities.

Is TB’s debt level acceptable?

TB is a relatively highly levered company with a debt-to-equity of 46%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. We can check to see whether TB is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In TB's, case, the ratio of 6.88x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving TB ample headroom to grow its debt facilities.

Next Steps:

TB’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Though its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven't considered other factors such as how TB has been performing in the past. I recommend you continue to research Triboo to get a more holistic view of the stock by looking at: