Investors are always looking for growth in small-cap stocks like Gr Sarantis SA (ATH:SAR), with a market cap of €446m. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. However, I know these factors are very high-level, so I recommend you dig deeper yourself into SAR here.
How much cash does SAR generate through its operations?
SAR’s debt levels surged from €35m to €47m over the last 12 months , which comprises of short- and long-term debt. With this growth in debt, SAR currently has €23m remaining in cash and short-term investments for investing into the business. On top of this, SAR has produced €20m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 42%, indicating that SAR’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In SAR’s case, it is able to generate 0.42x cash from its debt capital.
Does SAR’s liquid assets cover its short-term commitments?
With current liabilities at €102m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.02x. Usually, for Personal Products companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does SAR face the risk of succumbing to its debt-load?
SAR’s level of debt is appropriate relative to its total equity, at 24%. This range is considered safe as SAR is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether SAR 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 SAR’s, case, the ratio of 33.15x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as SAR’s high interest coverage is seen as responsible and safe practice.
SAR has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for SAR’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Gr. Sarantis to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SAR’s future growth? Take a look at our free research report of analyst consensus for SAR’s outlook.
- Valuation: What is SAR 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 SAR 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.