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Investors are always looking for growth in small-cap stocks like Astro S.A. (WSE:ASR), with a market cap of zł14m. However, an important fact which most ignore is: how financially healthy is the business? Given that ASR is not presently profitable, it’s essential to understand the current state of its operations and pathway to profitability. Let's work through some financial health checks you may wish to consider if you're interested in this stock. However, this is just a partial view of the stock, and I recommend you dig deeper yourself into ASR here.
Does ASR Produce Much Cash Relative To Its Debt?
ASR's debt levels surged from zł2.3m to zł5.2m over the last 12 months , which accounts for long term debt. With this growth in debt, ASR currently has zł866k remaining in cash and short-term investments , ready to be used for running the business. However, ASR is only generating zł13k in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of under 1x, indicating that debt is not covered by operating cash.
Can ASR meet its short-term obligations with the cash in hand?
At the current liabilities level of zł1.3m, it appears that the company has been able to meet these commitments with a current assets level of zł4.5m, leading to a 3.35x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. However, many consider a ratio above 3x to be high.
Does ASR face the risk of succumbing to its debt-load?
ASR is a relatively highly levered company with a debt-to-equity of 68%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. Though, since ASR is presently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although ASR’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around ASR's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for ASR's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Astro to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ASR’s future growth? Take a look at our free research report of analyst consensus for ASR’s outlook.
- Valuation: What is ASR 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 ASR 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.