While small-cap stocks, such as Konsorcjum Stali SA (WSE:KST) with its market cap of zł125.51m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I suggest you dig deeper yourself into KST here.
Does KST produce enough cash relative to debt?
KST’s debt levels surged from zł89.94m to zł134.02m over the last 12 months – this includes both the current and long-term debt. With this rise in debt, KST’s cash and short-term investments stands at zł2.60m , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of KST’s operating efficiency ratios such as ROA here.
Does KST’s liquid assets cover its short-term commitments?
Looking at KST’s most recent zł376.47m liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.25x. Generally, for Metals and Mining companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can KST service its debt comfortably?
KST is a relatively highly levered company with a debt-to-equity of 44.57%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether KST 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 KST’s, case, the ratio of 8.58x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
KST’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how KST has been performing in the past. I suggest you continue to research Konsorcjum Stali to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KST’s future growth? Take a look at our free research report of analyst consensus for KST’s outlook.
- Historical Performance: What has KST’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.