NEUCA SA (WSE:NEU) is a small-cap stock with a market capitalization of zł1.27b. 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? Healthcare companies, even ones that are profitable, tend to be high risk. Evaluating financial health as part of your investment thesis is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, I know these factors are very high-level, so I recommend you dig deeper yourself into NEU here.
How much cash does NEU generate through its operations?
NEU’s debt levels surged from zł141.03m to zł149.80m over the last 12 months , which is made up of current and long term debt. With this rise in debt, the current cash and short-term investment levels stands at zł64.99m for investing into the business. On top of this, NEU has generated zł137.24m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 91.62%, meaning that NEU’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In NEU’s case, it is able to generate 0.92x cash from its debt capital.
Can NEU pay its short-term liabilities?
At the current liabilities level of zł2.21b liabilities, 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 0.99x, which is below the prudent industry ratio of 3x.
Is NEU’s debt level acceptable?
With a debt-to-equity ratio of 22.34%, NEU’s debt level may be seen as prudent. This range is considered safe as NEU is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
NEU has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how NEU has been performing in the past. I suggest you continue to research NEUCA to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NEU’s future growth? Take a look at our free research report of analyst consensus for NEU’s outlook.
- Valuation: What is NEU 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 NEU 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 firstname.lastname@example.org.