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While small-cap stocks, such as Apetit Oyj (HLSE:APETIT) with its market cap of €86.27M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into APETIT here.

Does APETIT generate an acceptable amount of cash through operations?

APETIT’s debt levels have fallen from €19.10M to €4.90M over the last 12 months – this includes both the current and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at €15.70M for investing into the business. Moreover, APETIT has generated €20.00M in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 408.16%, signalling that APETIT’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In APETIT’s case, it is able to generate 4.08x cash from its debt capital.

Can APETIT pay its short-term liabilities?

At the current liabilities level of €35.50M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of €80.00M, with a current ratio of 2.25x. Usually, for Food companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

Is APETIT’s debt level acceptable?

With a debt-to-equity ratio of 4.36%, APETIT’s debt level is relatively low. This range is considered safe as APETIT is not taking on too much debt obligation, which may be constraining for future growth.

Next Steps:

APETIT has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for APETIT’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Apetit Oyj to get a more holistic view of the stock by looking at:

1. Valuation: What is APETIT worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether APETIT is currently mispriced by the market.

2. Historical Performance: What has APETIT’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.

3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.