Bong AB (publ) (STO:BONG) is a small-cap stock with a market capitalization of kr184m. 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 BONG is not presently profitable, 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, this commentary is still very high-level, so I suggest you dig deeper yourself into BONG here.
Does BONG produce enough cash relative to debt?
Over the past year, BONG has ramped up its debt from kr184m to kr204m , which accounts for long term debt. With this increase in debt, BONG currently has kr72m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can examine some of BONG’s operating efficiency ratios such as ROA here.
Can BONG meet its short-term obligations with the cash in hand?
With current liabilities at kr461m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.42x. Usually, for Commercial Services companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does BONG face the risk of succumbing to its debt-load?
BONG’s level of debt is appropriate relative to its total equity, at 36%. This range is considered safe as BONG is not taking on too much debt obligation, which may be constraining for future growth. BONG’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.
BONG’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how BONG has been performing in the past. I recommend you continue to research Bong to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BONG’s future growth? Take a look at our free research report of analyst consensus for BONG’s outlook.
- Valuation: What is BONG 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 BONG is currently mispriced by the market.
- 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.
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