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While small-cap stocks, such as Voxel S.A. (WSE:VOX) with its market cap of zł304m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Understanding the company's financial health becomes crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. We'll look at some basic checks that can form a snapshot the company’s financial strength. However, this is just a partial view of the stock, and I’d encourage you to dig deeper yourself into VOX here.
VOX’s Debt (And Cash Flows)
VOX's debt levels surged from zł42m to zł93m over the last 12 months , which accounts for long term debt. With this growth in debt, VOX's cash and short-term investments stands at zł21m , ready to be used for running the business. On top of this, VOX has produced zł38m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 41%, signalling that VOX’s operating cash is sufficient to cover its debt.
Can VOX pay its short-term liabilities?
With current liabilities at zł51m, it seems that the business has been able to meet these obligations given the level of current assets of zł76m, with a current ratio of 1.48x. The current ratio is calculated by dividing current assets by current liabilities. For Healthcare companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is VOX’s debt level acceptable?
VOX is a relatively highly levered company with a debt-to-equity of 45%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In VOX's case, the ratio of 12.13x suggests that interest is comfortably 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.
Although VOX’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for VOX's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Voxel to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for VOX’s future growth? Take a look at our free research report of analyst consensus for VOX’s outlook.
- Valuation: What is VOX 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 VOX is currently mispriced by the market.
- 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.