Dovre Group Plc (HLSE:DOV1V) is a small-cap stock with a market capitalization of €27.81M. 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? Given that DOV1V is not presently profitable, it’s essential to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into DOV1V here.
Does DOV1V generate enough cash through operations?
Over the past year, DOV1V has reduced its debt from €3.58M to €3.03M , which is made up of current and long term debt. With this debt repayment, DOV1V’s cash and short-term investments stands at €5.15M , 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 DOV1V’s operating efficiency ratios such as ROA here.
Does DOV1V’s liquid assets cover its short-term commitments?
With current liabilities at €11.93M, it seems that the business has been able to meet these commitments with a current assets level of €16.65M, leading to a 1.4x current account ratio. For Professional Services companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is DOV1V’s debt level acceptable?
With debt at 13.38% of equity, DOV1V may be thought of as appropriately levered. This range is considered safe as DOV1V is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. DOV1V’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
DOV1V’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for DOV1V’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Dovre Group to get a better picture of the stock by looking at: