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While small-cap stocks, such as ScandiDos AB (publ) (OM:SDOS) with its market cap of KR135.29M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Medical Equipment companies, in particular ones that run negative earnings, are more likely to be higher risk. Assessing first and foremost the financial health is essential. I believe these basic checks tell most of the story you need to know. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into SDOS here.
Does SDOS generate enough cash through operations?
SDOS has shrunken its total debt levels in the last twelve months, from KR9.90M to KR3.08M , which is made up of current and long term debt. With this debt payback, SDOS’s cash and short-term investments stands at KR8.27M for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can examine some of SDOS’s operating efficiency ratios such as ROA here.
Can SDOS pay its short-term liabilities?
Looking at SDOS’s most recent KR17.40M liabilities, the company has been able to meet these commitments with a current assets level of KR33.73M, leading to a 1.94x current account ratio. Usually, for Medical Equipment companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does SDOS face the risk of succumbing to its debt-load?
SDOS’s level of debt is low relative to its total equity, at 4.94%. SDOS is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. SDOS’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.
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SDOS’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 exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure SDOS has company-specific issues impacting its capital structure decisions. You should continue to research ScandiDos to get a more holistic view of the stock by looking at: