Investors are always looking for growth in small-cap stocks like Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco (EPA:BAIN), with a market cap of €1.2b. However, an important fact which most ignore is: how financially healthy is the business? Since BAIN is loss-making right now, it’s vital to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into BAIN here.
How much cash does BAIN generate through its operations?
Over the past year, BAIN has ramped up its debt from €10m to €130m – this includes both the current and long-term debt. With this rise in debt, BAIN currently has €71m remaining in cash and short-term investments for investing into the business. Moreover, BAIN has generated cash from operations of €33m in the last twelve months, resulting in an operating cash to total debt ratio of 25%, meaning that BAIN’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making companies since metrics such as return on asset (ROA) requires positive earnings. In BAIN’s case, it is able to generate 0.25x cash from its debt capital.
Can BAIN meet its short-term obligations with the cash in hand?
At the current liabilities level of €245m liabilities, it seems that the business arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.57x.
Is BAIN’s debt level acceptable?
With debt at 21% of equity, BAIN may be thought of as appropriately levered. BAIN is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. BAIN’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
BAIN has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. But, 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 BAIN has been performing in the past. You should continue to research Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco to get a better picture of the stock by looking at:
- Historical Performance: What has BAIN’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.
- 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 email@example.com.