Investors are always looking for growth in small-cap stocks like JWW Invest SA. (WSE:JWW), with a market cap of ZŁ14.19M. However, an important fact which most ignore is: how financially healthy is the business? Since JWW is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into JWW here.
How does JWW’s operating cash flow stack up against its debt?
JWW has shrunken its total debt levels in the last twelve months, from ZŁ3.06M to ZŁ1.35M . With this debt payback, JWW currently has ZŁ12.14M remaining in cash and short-term investments , ready to deploy into the business. On top of this, JWW has generated cash from operations of ZŁ7.03M in the last twelve months, resulting in an operating cash to total debt ratio of 522.83%, meaning that JWW’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In JWW’s case, it is able to generate 5.23x cash from its debt capital.
Can JWW meet its short-term obligations with the cash in hand?
With current liabilities at ZŁ4.79M, the company has been able to meet these commitments with a current assets level of ZŁ17.73M, leading to a 3.7x current account ratio. Though, anything about 3x may be excessive, since JWW may be leaving too much capital in low-earning investments.
Does JWW face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 44.55%, JWW can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since JWW is presently loss-making, 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.
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Although JWW’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for JWW’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research JWW Invest to get a more holistic view of the small-cap by looking at: