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FastPartner AB (publ) (STO:FPAR) is a small-cap stock with a market capitalization of kr14b. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Understanding the company's financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Let's work through some financial health checks you may wish to consider if you're interested in this stock. Nevertheless, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into FPAR here.
FPAR’s Debt (And Cash Flows)
FPAR's debt levels surged from kr11b to kr15b over the last 12 months , which accounts for long term debt. With this increase in debt, the current cash and short-term investment levels stands at kr440m , ready to be used for running the business. Moreover, FPAR has generated cash from operations of kr491m over the same time period, resulting in an operating cash to total debt ratio of 3.3%, indicating that FPAR’s debt is not covered by operating cash.
Can FPAR pay its short-term liabilities?
At the current liabilities level of kr4.1b, it seems that the business may not be able to easily meet these obligations given the level of current assets of kr954m, with a current ratio of 0.23x. The current ratio is the number you get when you divide current assets by current liabilities.
Does FPAR face the risk of succumbing to its debt-load?
FPAR is a highly-leveraged company with debt exceeding equity by over 100%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. We can check to see whether FPAR 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 FPAR's, case, the ratio of 4.17x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving FPAR ample headroom to grow its debt facilities.
FPAR’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 small-cap. This is only a rough assessment of financial health, and I'm sure FPAR has company-specific issues impacting its capital structure decisions. I suggest you continue to research FastPartner to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FPAR’s future growth? Take a look at our free research report of analyst consensus for FPAR’s outlook.
- Valuation: What is FPAR 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 FPAR 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 firstname.lastname@example.org. 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.