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Investors are always looking for growth in small-cap stocks like Inwido AB (STO:INWI), with a market cap of kr3.4b. However, an important fact which most ignore is: how financially healthy is the business? Understanding the company's financial health becomes vital, since poor capital management may bring about 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, these checks don't give you a full picture, so I suggest you dig deeper yourself into INWI here.
INWI’s Debt (And Cash Flows)
INWI has built up its total debt levels in the last twelve months, from kr2.1b to kr2.7b – this includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at kr125m to keep the business going. Moreover, INWI has produced cash from operations of kr603m over the same time period, resulting in an operating cash to total debt ratio of 22%, meaning that INWI’s debt is appropriately covered by operating cash.
Can INWI pay its short-term liabilities?
At the current liabilities level of kr1.5b, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.1x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Building companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Is INWI’s debt level acceptable?
With debt reaching 77% of equity, INWI 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. We can check to see whether INWI 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 INWI's, case, the ratio of 10.1x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving INWI ample headroom to grow its debt facilities.
INWI’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. Keep in mind I haven't considered other factors such as how INWI has been performing in the past. You should continue to research Inwido to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for INWI’s future growth? Take a look at our free research report of analyst consensus for INWI’s outlook.
- Valuation: What is INWI 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 INWI 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.