Sistema Public Joint Stock Financial Corporation (MISX:AFKS) is a small-cap stock with a market capitalization of RUРУБ102.35B. 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? Companies operating in the Wireless Telecom industry facing headwinds from current disruption, especially ones that are currently loss-making, are inclined towards being higher risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into AFKS here.
Does AFKS generate enough cash through operations?
AFKS has built up its total debt levels in the last twelve months, from RUРУБ478.13B to RUРУБ615.82B , which is made up of current and long term debt. With this rise in debt, the current cash and short-term investment levels stands at RUРУБ88.03B for investing into the business. Moreover, AFKS has produced cash from operations of RUРУБ98.60B over the same time period, resulting in an operating cash to total debt ratio of 16.01%, meaning that AFKS’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires a positive net income. In AFKS’s case, it is able to generate 0.16x cash from its debt capital.
Does AFKS’s liquid assets cover its short-term commitments?
With current liabilities at RUРУБ518.72B, it seems that the business has not been able to meet these commitments with a current assets level of RUРУБ370.62B, leading to a 0.71x current account ratio. which is under the appropriate industry ratio of 3x.
Does AFKS face the risk of succumbing to its debt-load?
AFKS is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since AFKS is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.