Danieli & C. Officine Meccaniche S.p.A. (BIT:DAN) is a small-cap stock with a market capitalization of €1.1b. 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? Assessing first and foremost the financial health is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into DAN here.
How much cash does DAN generate through its operations?
DAN has shrunken its total debt levels in the last twelve months, from €501m to €476m , which includes long-term debt. With this debt repayment, DAN’s cash and short-term investments stands at €1.4b , ready to deploy into the business. On top of this, DAN has generated cash from operations of €19m in the last twelve months, resulting in an operating cash to total debt ratio of 4.0%, indicating that DAN’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In DAN’s case, it is able to generate 0.04x cash from its debt capital.
Can DAN meet its short-term obligations with the cash in hand?
Looking at DAN’s €2.4b in current liabilities, the company has been able to meet these obligations given the level of current assets of €3.6b, with a current ratio of 1.48x. For Machinery companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does DAN face the risk of succumbing to its debt-load?
With debt at 26% of equity, DAN may be thought of as appropriately levered. This range is considered safe as DAN is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
DAN’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure DAN has company-specific issues impacting its capital structure decisions. You should continue to research Danieli & C. Officine Meccaniche to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for DAN’s future growth? Take a look at our free research report of analyst consensus for DAN’s outlook.
- Valuation: What is DAN 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 DAN 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.
To help readers see past 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. For errors that warrant correction please contact the editor at email@example.com.