You Might Like Brioschi Sviluppo Immobiliare spa (BIT:BRI) But Do You Like Its Debt?

Simply Wall St

Tue, May 28, 2019, 4:17 AM

Investors are always looking for growth in small-cap stocks like Brioschi Sviluppo Immobiliare spa (BIT:BRI), with a market cap of €57m. However, an important fact which most ignore is: how financially healthy is the business? Since BRI is loss-making right now, it’s vital to assess the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, this is just a partial view of the stock, and I recommend you dig deeper yourself into BRI here.

BRI’s Debt (And Cash Flows)

Over the past year, BRI has reduced its debt from €162m to €150m – this includes long-term debt. With this debt payback, the current cash and short-term investment levels stands at €24m , ready to be used for running the business. Moving on, operating cash flow was negative over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can assess some of BRI’s operating efficiency ratios such as ROA here.

Can BRI pay its short-term liabilities?

Looking at BRI’s €62m in current liabilities, the company has been able to meet these obligations given the level of current assets of €126m, with a current ratio of 2.04x. The current ratio is calculated by dividing current assets by current liabilities. For Real Estate companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.

Does BRI face the risk of succumbing to its debt-load?

With total debt exceeding equity, BRI is considered a highly levered company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. Though, since BRI is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

BRI’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. 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 BRI's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Brioschi Sviluppo Immobiliare to get a better picture of the small-cap by looking at: