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Investors are always looking for growth in small-cap stocks like Krynicki Recykling Spólka Akcyjna (WSE:KRC), with a market cap of zł68m. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Let's work through some financial health checks you may wish to consider if you're interested in this stock. Nevertheless, these checks don't give you a full picture, so I recommend you dig deeper yourself into KRC here.
KRC’s Debt (And Cash Flows)
KRC's debt levels surged from zł55m to zł65m over the last 12 months , which accounts for long term debt. With this rise in debt, KRC currently has zł86k remaining in cash and short-term investments , ready to be used for running the business. Additionally, KRC has produced cash from operations of zł25m during the same period of time, leading to an operating cash to total debt ratio of 39%, signalling that KRC’s current level of operating cash is high enough to cover debt.
Does KRC’s liquid assets cover its short-term commitments?
Looking at KRC’s zł40m in current liabilities, it seems that the business may not be able to easily meet these obligations given the level of current assets of zł20m, with a current ratio of 0.51x. The current ratio is the number you get when you divide current assets by current liabilities.
Does KRC face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 73%, KRC can be considered as an above-average leveraged company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. We can test if KRC’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 KRC, the ratio of 6.67x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving KRC ample headroom to grow its debt facilities.
KRC’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. However, 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 KRC has been performing in the past. You should continue to research Krynicki Recykling Spólka Akcyjna to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KRC’s future growth? Take a look at our free research report of analyst consensus for KRC’s outlook.
- Valuation: What is KRC 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 KRC 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.