In This Article:
OrganoClick AB (STO:ORGC) is a small-cap stock with a market capitalization of kr393m. 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? Since ORGC is loss-making right now, it’s crucial to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, I know these factors are very high-level, so I recommend you dig deeper yourself into ORGC here.
How does ORGC’s operating cash flow stack up against its debt?
ORGC’s debt levels surged from kr26m to kr32m over the last 12 months – this includes both the current and long-term debt. With this rise in debt, ORGC currently has kr14m remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of ORGC’s operating efficiency ratios such as ROA here.
Can ORGC meet its short-term obligations with the cash in hand?
With current liabilities at kr50m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.08x. Generally, for Chemicals companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does ORGC face the risk of succumbing to its debt-load?
ORGC is a relatively highly levered company with a debt-to-equity of 67%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since ORGC is presently unprofitable, 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.
Next Steps:
ORGC’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for ORGC’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research OrganoClick to get a better picture of the stock by looking at: