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While small-cap stocks, such as Public Joint – Stock Company Ruspolymet (MISX:RUSP) with its market cap of RUРУБ2.28B, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into RUSP here.
Does RUSP generate an acceptable amount of cash through operations?
RUSP has built up its total debt levels in the last twelve months, from RUРУБ5.47B to RUРУБ6.76B , which comprises of short- and long-term debt. With this growth in debt, RUSP currently has RUРУБ1.78B remaining in cash and short-term investments , ready to deploy into the business. Additionally, RUSP has produced RUРУБ2.32B in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 34.32%, signalling that RUSP’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In RUSP’s case, it is able to generate 0.34x cash from its debt capital.
Can RUSP pay its short-term liabilities?
Looking at RUSP’s most recent RUРУБ7.12B liabilities, it seems that the business has not been able to meet these commitments with a current assets level of RUРУБ6.53B, leading to a 0.92x current account ratio. which is under the appropriate industry ratio of 3x.
Is RUSP’s debt level acceptable?
Since total debt levels have outpaced equities, RUSP is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if RUSP’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For RUSP, the ratio of 4.4x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as RUSP’s high interest coverage is seen as responsible and safe practice.