What Investors Should Know About Best Union Company Sp.A.’s (BIT:BEST) Financial Strength
While small-cap stocks, such as Best Union Company Sp.A. (BIT:BEST) with its market cap of €35.72M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, 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. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into BEST here.
Does BEST generate an acceptable amount of cash through operations?
BEST’s debt levels have fallen from €13.83M to €10.49M over the last 12 months , which comprises of short- and long-term debt. With this debt payback, BEST’s cash and short-term investments stands at €9.29M for investing into the business. Moreover, BEST has produced €6.67M in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 63.60%, indicating that BEST’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In BEST’s case, it is able to generate 0.64x cash from its debt capital.
Can BEST meet its short-term obligations with the cash in hand?
With current liabilities at €30.29M, it appears that the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.97x, which is below the prudent industry ratio of 3x.
Can BEST service its debt comfortably?
BEST is a relatively highly levered company with a debt-to-equity of 95.21%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In BEST’s case, the ratio of 13.78x suggests that interest is comfortably 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.
Next Steps:
Although BEST’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. However, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for BEST’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Best Union to get a better picture of the stock by looking at:
Valuation: What is BEST 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 BEST is currently mispriced by the market.
Historical Performance: What has BEST’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.
