Be Think Solve Execute SpA (BIT:BET) is a small-cap stock with a market capitalization of €122.71m. 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? IT companies, even ones that are profitable, are more likely to be higher risk. So, understanding the company’s financial health becomes vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into BET here.
How does BET’s operating cash flow stack up against its debt?
BET has sustained its debt level by about €39.31m over the last 12 months comprising of short- and long-term debt. At this current level of debt, BET currently has €16.95m remaining in cash and short-term investments , ready to deploy into the business. On top of this, BET has produced cash from operations of €3.17m during the same period of time, leading to an operating cash to total debt ratio of 8.06%, meaning that BET’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In BET’s case, it is able to generate 0.081x cash from its debt capital.
Does BET’s liquid assets cover its short-term commitments?
With current liabilities at €53.23m, the company has been able to meet these commitments with a current assets level of €59.46m, leading to a 1.12x current account ratio. Usually, for IT companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can BET service its debt comfortably?
With a debt-to-equity ratio of 73.44%, BET can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether BET 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 BET’s, case, the ratio of 22.58x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as BET’s high interest coverage is seen as responsible and safe practice.
Next Steps:
BET’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. 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 BET’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Be Think Solve Execute to get a better picture of the stock by looking at: