Is Enter Air Sp z oo’s (WSE:ENT) Balance Sheet A Threat To Its Future?
Investors are always looking for growth in small-cap stocks like Enter Air Sp z oo (WSE:ENT), with a market cap of zł354.38m. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, since I only look at basic financial figures, I suggest you dig deeper yourself into ENT here.
Does ENT produce enough cash relative to debt?
ENT has built up its total debt levels in the last twelve months, from zł294.04m to zł0 , which is made up of current and long term debt. With this rise in debt, the current cash and short-term investment levels stands at zł58.87m , ready to deploy into the business. Moreover, ENT has generated cash from operations of zł66.85m over the same time period, leading to an operating cash to total debt ratio of 18.47%, indicating that ENT’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In ENT’s case, it is able to generate 0.18x cash from its debt capital.
Does ENT’s liquid assets cover its short-term commitments?
Looking at ENT’s most recent zł182.48m liabilities, the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.88x, which is below the prudent industry ratio of 3x.
Is ENT’s debt level acceptable?
ENT is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether ENT 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 ENT’s, case, the ratio of 4.29x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as ENT’s high interest coverage is seen as responsible and safe practice.
Next Steps:
ENT’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure ENT has company-specific issues impacting its capital structure decisions. I suggest you continue to research Enter Air Sp. z o.o to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ENT’s future growth? Take a look at our free research report of analyst consensus for ENT’s outlook.
Historical Performance: What has ENT’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.
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.
