What You Must Know About FERRO SA.’s (WSE:FRO) Financial Strength
FERRO SA. (WSE:FRO) is a small-cap stock with a market capitalization of ZŁ305.89M. 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 essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into FRO here.
Does FRO generate enough cash through operations?
Over the past year, FRO has reduced its debt from ZŁ86.94M to ZŁ78.63M , which is made up of current and long term debt. With this debt payback, FRO currently has ZŁ9.38M remaining in cash and short-term investments , ready to deploy into the business. Moreover, FRO has produced cash from operations of ZŁ34.18M over the same time period, leading to an operating cash to total debt ratio of 43.47%, indicating that FRO’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In FRO’s case, it is able to generate 0.43x cash from its debt capital.
Does FRO’s liquid assets cover its short-term commitments?
With current liabilities at ZŁ87.24M, it appears that the company has been able to meet these obligations given the level of current assets of ZŁ153.93M, with a current ratio of 1.76x. Usually, for Building companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is FRO’s debt level acceptable?
FRO’s level of debt is appropriate relative to its total equity, at 38.11%. FRO is not taking on too much debt commitment, which may be constraining for future growth.
Next Steps:
FRO has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for FRO’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research FERRO to get a more holistic view of the stock by looking at:
1. Valuation: What is FRO 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 FRO is currently mispriced by the market.
2. Historical Performance: What has FRO’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
3. 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 pass 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.
