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While small-cap stocks, such as Parrot SA (EPA:PARRO) with its market cap of €132.2m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Communications companies, in particular ones that run negative earnings, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is vital. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into PARRO here.
How much cash does PARRO generate through its operations?
Over the past year, PARRO has maintained its debt levels at around €42.2m comprising of short- and long-term debt. At this current level of debt, PARRO’s cash and short-term investments stands at €129.1m , ready to deploy 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 assess some of PARRO’s operating efficiency ratios such as ROA here.
Can PARRO pay its short-term liabilities?
With current liabilities at €110.9m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.7x. Usually, for Communications 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.
Is PARRO’s debt level acceptable?
With debt at 18.4% of equity, PARRO may be thought of as appropriately levered. PARRO is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is very low with PARRO, and the company has plenty of headroom and ability to raise debt should it need to in the future.
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PARRO’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. 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 PARRO has company-specific issues impacting its capital structure decisions. I recommend you continue to research Parrot to get a better picture of the stock by looking at: