Investors are always looking for growth in small-cap stocks like Projprzem SA (WSE:PJP), with a market cap of zł115.47m. 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, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I recommend you dig deeper yourself into PJP here.
How much cash does PJP generate through its operations?
PJP has shrunken its total debt levels in the last twelve months, from zł28.33m to zł19.48m , which comprises of short- and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at zł11.65m for investing into the business. On top of this, PJP has produced zł11.62m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 59.62%, signalling that PJP’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In PJP’s case, it is able to generate 0.6x cash from its debt capital.
Can PJP meet its short-term obligations with the cash in hand?
With current liabilities at zł78.11m, it seems that the business has been able to meet these commitments with a current assets level of zł98.99m, leading to a 1.27x current account ratio. Generally, for Building companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does PJP face the risk of succumbing to its debt-load?
With debt at 18.86% of equity, PJP may be thought of as appropriately levered. PJP is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether PJP 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 PJP’s, case, the ratio of 46.56x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as PJP’s high interest coverage is seen as responsible and safe practice.
PJP’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for PJP’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Projprzem to get a better picture of the stock by looking at:
- Valuation: What is PJP 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 PJP is currently mispriced by the market.
- Historical Performance: What has PJP’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.