Investors are always looking for growth in small-cap stocks like Sollers Public Joint Stock Company (MISX:SVAV), with a market cap of RUРУБ17.07B. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into SVAV here.
Does SVAV generate enough cash through operations?
SVAV’s debt levels surged from RUРУБ7.08B to RUРУБ10.79B over the last 12 months – this includes both the current and long-term debt. With this increase in debt, SVAV currently has RUРУБ2.31B remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of SVAV’s operating efficiency ratios such as ROA here.
Can SVAV pay its short-term liabilities?
With current liabilities at RUРУБ19.76B, the company has not been able to meet these commitments with a current assets level of RUРУБ17.84B, leading to a 0.9x current account ratio. which is under the appropriate industry ratio of 3x.
Is SVAV’s debt level acceptable?
With debt reaching 56.86% of equity, SVAV may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether SVAV 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 SVAV’s, case, the ratio of 2.86x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as SVAV’s low interest coverage already puts the company at higher risk of default.
SVAV’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Furthermore, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure SVAV has company-specific issues impacting its capital structure decisions. I recommend you continue to research Sollers to get a more holistic view of the stock by looking at:
- Valuation: What is SVAV 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 SVAV is currently mispriced by the market.
- Historical Performance: What has SVAV’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 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.