Is Isagro SpA (BIT:ISG) A Financially Sound Company?
Isagro SpA (BIT:ISG) is a small-cap stock with a market capitalization of €61.9m. 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? So, understanding the company’s financial health becomes vital, since poor capital management may bring about 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. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into ISG here.
How much cash does ISG generate through its operations?
ISG has built up its total debt levels in the last twelve months, from €72.0m to €93.0m – this includes both the current and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at €43.2m , ready to deploy into the business. On top of this, ISG has generated cash from operations of €9.3m over the same time period, resulting in an operating cash to total debt ratio of 10.1%, indicating that ISG’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 ISG’s case, it is able to generate 0.1x cash from its debt capital.
Does ISG’s liquid assets cover its short-term commitments?
Looking at ISG’s most recent €88.9m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of €147.6m, with a current ratio of 1.66x. Usually, for Chemicals companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is ISG’s debt level acceptable?
With debt reaching 92.4% of equity, ISG may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if ISG’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For ISG, the ratio of 4.35x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving ISG ample headroom to grow its debt facilities.
Next Steps:
At its current level of cash flow coverage, ISG has room for improvement to better cushion for events which may require debt repayment. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for ISG’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Isagro to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ISG’s future growth? Take a look at our free research report of analyst consensus for ISG’s outlook.
Valuation: What is ISG 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 ISG 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 editorial-team@simplywallst.com.
