Is Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco’s (EPA:BAIN) Balance Sheet A Threat To Its Future?
Investors are always looking for growth in small-cap stocks like Société Anonyme des Bains de Mer et du Cercle des Étrangers à Monaco (ENXTPA:BAIN), with a market cap of €1.35B. However, an important fact which most ignore is: how financially healthy is the business? Since BAIN is loss-making right now, it’s crucial to evaluate the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into BAIN here.
Does BAIN generate enough cash through operations?
BAIN has sustained its debt level by about €9.89M over the last 12 months – this includes both the current and long-term debt. At this constant level of debt, BAIN’s cash and short-term investments stands at €94.85M for investing into the business. Moreover, BAIN has generated cash from operations of €18.23M in the last twelve months, resulting in an operating cash to total debt ratio of 184.38%, meaning that BAIN’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for loss making businesses since metrics such as return on asset (ROA) requires a positive net income. In BAIN’s case, it is able to generate 1.84x cash from its debt capital.
Can BAIN meet its short-term obligations with the cash in hand?
At the current liabilities level of €221.89M liabilities, the company is not able to meet these obligations given the level of current assets of €161.64M, with a current ratio of 0.73x below the prudent level of 3x.
Does BAIN face the risk of succumbing to its debt-load?
BAIN’s level of debt is low relative to its total equity, at 6.89%. BAIN is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is extremely low for BAIN, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
BAIN has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. But, as shareholders, you should try and determine whether this level of debt is justified for BAIN, especially when liquidity may also be an issue. I admit this is a fairly basic analysis for BAIN’s financial health. Other important fundamentals need to be considered alongside. I recommend you 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:
1. 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.
2. 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.
