NanoRepro AG (DB:NN6) is a small-cap stock with a market capitalization of €9.24M. 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? Medical Equipment companies, especially ones that are currently loss-making, tend to be high risk. Evaluating financial health as part of your investment thesis is crucial. Here are few basic financial health checks you should consider before taking the plunge. However, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into NN6 here.

Does NN6 generate an acceptable amount of cash through operations?

NN6’s debt levels surged from €13.45K to €155.98K over the last 12 months , which is made up of current and long term debt. With this rise in debt, NN6 currently has €530.12K 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of NN6’s operating efficiency ratios such as ROA here.

Can NN6 pay its short-term liabilities?

At the current liabilities level of €396.80K liabilities, the company has been able to meet these obligations given the level of current assets of €1.05M, with a current ratio of 2.63x. Usually, for Medical Equipment companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Can NN6 service its debt comfortably?

With a debt-to-equity ratio of 4.76%, NN6’s debt level is relatively low. This range is considered safe as NN6 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. NN6’s risk around capital structure is almost non-existent, and the company has the headroom and ability to raise debt should it need to in the future.

Next Steps:

Although NN6’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure NN6 has company-specific issues impacting its capital structure decisions. You should continue to research NanoRepro to get a better picture of the stock by looking at: