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Investors are always looking for growth in small-cap stocks like Boozt AB (publ) (STO:BOOZT), with a market cap of kr4.0b. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is essential, 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’d encourage you to dig deeper yourself into BOOZT here.
BOOZT’s Debt (And Cash Flows)
Over the past year, BOOZT has ramped up its debt from kr101m to kr111m , which accounts for long term debt. With this increase in debt, BOOZT's cash and short-term investments stands at kr368m , ready to be used for running the business. Its negative operating cash flow means calculating cash-to-debt wouldn't be useful. For this article’s sake, I won’t be looking at this today, but you can examine some of BOOZT’s operating efficiency ratios such as ROA here.
Can BOOZT meet its short-term obligations with the cash in hand?
With current liabilities at kr884m, the company has been able to meet these obligations given the level of current assets of kr1.5b, with a current ratio of 1.73x. The current ratio is the number you get when you divide current assets by current liabilities. For Online Retail companies, this ratio is within a sensible range since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does BOOZT face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 13%, BOOZT's debt level may be seen as prudent. BOOZT is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether BOOZT 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 BOOZT's, case, the ratio of 28.33x suggests that interest is comfortably covered, which means that lenders may be willing to lend out more funding as BOOZT’s high interest coverage is seen as responsible and safe practice.
BOOZT has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, 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 BOOZT's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Boozt to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BOOZT’s future growth? Take a look at our free research report of analyst consensus for BOOZT’s outlook.
- Valuation: What is BOOZT 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 BOOZT 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.