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Investors are always looking for growth in small-cap stocks like Budimex SA (WSE:BDX), with a market cap of zł3.5b. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Let's work through some financial health checks you may wish to consider if you're interested in this stock. However, potential investors would need to take a closer look, and I suggest you dig deeper yourself into BDX here.
Does BDX Produce Much Cash Relative To Its Debt?
BDX's debt levels surged from zł132m to zł359m over the last 12 months , which includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at zł870m , ready to be used for running the business. We note it produced negative cash flow over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can examine some of BDX’s operating efficiency ratios such as ROA here.
Can BDX pay its short-term liabilities?
With current liabilities at zł3.4b, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.19x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Construction companies, this is a reasonable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Can BDX service its debt comfortably?
BDX is a relatively highly levered company with a debt-to-equity of 46%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies.
BDX’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for BDX's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Budimex to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BDX’s future growth? Take a look at our free research report of analyst consensus for BDX’s outlook.
- Valuation: What is BDX 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 BDX 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.