Investors are always looking for growth in small-cap stocks like Flour Mills C Sarantopoulos S.A. (ATSE:KYSA), with a market cap of €2.80M. However, an important fact which most ignore is: how financially healthy is the business? Since KYSA is loss-making right now, it’s essential to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into KYSA here.
How does KYSA’s operating cash flow stack up against its debt?
KYSA has sustained its debt level by about €11.31M over the last 12 months made up of current and long term debt. At this constant level of debt, KYSA currently has €345.22K remaining in cash and short-term investments , ready to deploy into the business. Moreover, KYSA has generated €410.63K in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 3.63%, signalling that KYSA’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires a positive net income. In KYSA’s case, it is able to generate 0.036x cash from its debt capital.
Can KYSA pay its short-term liabilities?
At the current liabilities level of €15.90M liabilities, it seems that the business has not been able to meet these commitments with a current assets level of €10.06M, leading to a 0.63x current account ratio. which is under the appropriate industry ratio of 3x.
Does KYSA face the risk of succumbing to its debt-load?
With total debt exceeding equities, KYSA is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since KYSA 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.
Next Steps:
With a high level of debt on its balance sheet, KYSA could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for KYSA to increase its operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how KYSA has been performing in the past. You should continue to research Flour Mills C. Sarantopoulos to get a better picture of the stock by looking at: