Is Public Joint-Stock Company Enel Russia’s (MCX:ENRU) Balance Sheet Strong Enough To Weather A Storm?
While small-cap stocks, such as Public Joint-Stock Company Enel Russia (MISX:ENRU) with its market cap of RUРУБ53.53B, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. 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. 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 ENRU here.
Does ENRU generate an acceptable amount of cash through operations?
ENRU’s debt levels have fallen from RUРУБ26.47B to RUРУБ23.87B over the last 12 months , which comprises of short- and long-term debt. With this debt repayment, ENRU currently has RUРУБ6.13B remaining in cash and short-term investments for investing into the business. On top of this, ENRU has produced RUРУБ14.10B in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 59.06%, indicating that ENRU’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 ENRU’s case, it is able to generate 0.59x cash from its debt capital.
Can ENRU pay its short-term liabilities?
With current liabilities at RUРУБ25.62B, it seems that the business has not been able to meet these commitments with a current assets level of RUРУБ17.47B, leading to a 0.68x current account ratio. which is under the appropriate industry ratio of 3x.
Is ENRU’s debt level acceptable?
With a debt-to-equity ratio of 57.78%, ENRU can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if ENRU’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For ENRU, the ratio of 8.3x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
ENRU’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for ENRU’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Enel Russia to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for ENRU’s future growth? Take a look at our free research report of analyst consensus for ENRU’s outlook.
2. Valuation: What is ENRU 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 ENRU is currently mispriced by the market.
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.
