Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Investors are always looking for growth in small-cap stocks like Investis Holding SA (VTX:IREN), with a market cap of CHF859m. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. The following basic checks can help you get a picture of the company's balance sheet strength. However, this is just a partial view of the stock, and I’d encourage you to dig deeper yourself into IREN here.
IREN’s Debt (And Cash Flows)
IREN has built up its total debt levels in the last twelve months, from CHF446m to CHF550m , which accounts for long term debt. With this rise in debt, the current cash and short-term investment levels stands at CHF33m to keep the business going. On top of this, IREN has generated CHF48m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 8.7%, meaning that IREN’s debt is not covered by operating cash.
Can IREN meet its short-term obligations with the cash in hand?
Looking at IREN’s CHF270m in current liabilities, it seems that the business arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.49x. The current ratio is calculated by dividing current assets by current liabilities.
Is IREN’s debt level acceptable?
With debt reaching 93% of equity, IREN may be thought of as relatively highly levered. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In IREN's case, the ratio of 11.33x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving IREN ample headroom to grow its debt facilities.
IREN’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. However, its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven't considered other factors such as how IREN has been performing in the past. You should continue to research Investis Holding to get a more holistic view of the stock by looking at:
- Valuation: What is IREN 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 IREN is currently mispriced by the market.
- Historical Performance: What has IREN's returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.