Kolinpharma S.p.A. (BIT:KIP) is a small-cap stock with a market capitalization of €10m. 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 KIP is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, I know these factors are very high-level, so I recommend you dig deeper yourself into KIP here.
Does KIP produce enough cash relative to debt?
KIP’s debt levels have fallen from €2.7m to €1.2m over the last 12 months – this includes long-term debt. With this debt payback, KIP currently has €460k remaining in cash and short-term investments for investing 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 KIP’s operating efficiency ratios such as ROA here.
Does KIP’s liquid assets cover its short-term commitments?
With current liabilities at €2.6m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.4x. For Personal Products companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is KIP’s debt level acceptable?
With a debt-to-equity ratio of 29%, KIP’s debt level may be seen as prudent. KIP is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is very low with KIP, and the company has plenty of headroom and ability to raise debt should it need to in the future.
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KIP’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for KIP’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Kolinpharma to get a more holistic view of the stock by looking at: