U.S. Markets closed

Is Dino Polska SA.’s (WSE:DNP) Balance Sheet Strong Enough To Weather A Storm?

Laura Kearns

Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Dino Polska SA. (WSE:DNP) with a market-capitalization of ZŁ9.80B, rarely draw their attention. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. DNP’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into DNP here. See our latest analysis for Dino Polska

Does DNP generate enough cash through operations?

DNP’s debt levels surged from ZŁ562.55M to ZŁ688.07M over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at ZŁ202.63M for investing into the business. Moreover, DNP has generated cash from operations of ZŁ497.20M during the same period of time, resulting in an operating cash to total debt ratio of 72.26%, meaning that DNP’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In DNP’s case, it is able to generate 0.72x cash from its debt capital.

Does DNP’s liquid assets cover its short-term commitments?

Looking at DNP’s most recent ZŁ970.95M liabilities, the company is not able to meet these obligations given the level of current assets of ZŁ643.37M, with a current ratio of 0.66x below the prudent level of 3x.

WSE:DNP Historical Debt Jun 14th 18

Is DNP’s debt level acceptable?

DNP is a relatively highly levered company with a debt-to-equity of 77.93%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if DNP’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For DNP, the ratio of 8.69x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as DNP’s high interest coverage is seen as responsible and safe practice.

Next Steps:

DNP’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. But, its lack of liquidity raises questions over current asset management practices for the mid-cap. I admit this is a fairly basic analysis for DNP’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Dino Polska to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for DNP’s future growth? Take a look at our free research report of analyst consensus for DNP’s outlook.
  2. Valuation: What is DNP 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 DNP is currently mispriced by the market.
  3. 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 pass 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.