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While small-cap stocks, such as Telesia Sp.A. (BIT:TLS) with its market cap of €12.22M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into TLS here.
Does TLS generate enough cash through operations?
Over the past year, TLS has ramped up its debt from €45.09K to €329.24K made up of predominantly near term debt. With this rise in debt, the current cash and short-term investment levels stands at €51.77K , ready to deploy into the business. Moreover, TLS has produced €572.08K in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 173.76%, meaning that TLS’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In TLS’s case, it is able to generate 1.74x cash from its debt capital.
Can TLS meet its short-term obligations with the cash in hand?
At the current liabilities level of €4.16M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.74x. Generally, for Media companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is TLS’s debt level acceptable?
With debt at 4.03% of equity, TLS may be thought of as having low leverage. TLS is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether TLS is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In TLS’s, case, the ratio of 17.12x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
TLS has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for TLS’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Telesia to get a more holistic view of the stock by looking at: