While small-cap stocks, such as Delticom AG (ETR:DEX) with its market cap of €110.43m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Online Retail businesses operating in the environment facing headwinds from current disruption, even ones that are profitable, are inclined towards being higher risk. So, understanding the company’s financial health becomes vital. I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I suggest you dig deeper yourself into DEX here.
How does DEX’s operating cash flow stack up against its debt?
DEX’s debt levels have fallen from €19.89m to €15.32m over the last 12 months , which is made up of current and long term debt. With this debt payback, DEX’s cash and short-term investments stands at €3.88m , ready to deploy into the business. Additionally, DEX has produced cash from operations of €15.38m during the same period of time, leading to an operating cash to total debt ratio of 100.41%, signalling that DEX’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In DEX’s case, it is able to generate 1x cash from its debt capital.
Can DEX meet its short-term obligations with the cash in hand?
Looking at DEX’s most recent €140.41m liabilities, the company is not able to meet these obligations given the level of current assets of €122.99m, with a current ratio of 0.88x below the prudent level of 3x.
Does DEX face the risk of succumbing to its debt-load?
DEX’s level of debt is appropriate relative to its total equity, at 28.94%. DEX is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether DEX 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 DEX’s, case, the ratio of 7.89x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as DEX’s high interest coverage is seen as responsible and safe practice.
DEX’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for DEX’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Delticom to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for DEX’s future growth? Take a look at our free research report of analyst consensus for DEX’s outlook.
- Valuation: What is DEX 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 DEX 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.