Investors are always looking for growth in small-cap stocks like B&S Group S.A. (AMS:BSGR), with a market cap of €1.1b. However, an important fact which most ignore is: how financially healthy is the business? Understanding the company's financial health becomes vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Let's work through some financial health checks you may wish to consider if you're interested in this stock. Nevertheless, potential investors would need to take a closer look, and I recommend you dig deeper yourself into BSGR here.
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BSGR's Debt (And Cash Flows)
BSGR has built up its total debt levels in the last twelve months, from €223m to €361m - this includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at €27m , ready to be used for running the business. Additionally, BSGR has generated cash from operations of €3.5m in the last twelve months, leading to an operating cash to total debt ratio of 1.0%, indicating that BSGR's current level of operating cash is not high enough to cover debt.
Can BSGR pay its short-term liabilities?
At the current liabilities level of €431m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.48x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Retail Distributors companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is BSGR's debt level acceptable?
BSGR is a highly-leveraged company with debt exceeding equity by over 100%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. We can test if BSGR'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 BSGR, the ratio of 12.97x suggests that interest is comfortably covered, which means that lenders may be willing to lend out more funding as BSGR's high interest coverage is seen as responsible and safe practice.
BSGR'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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven't considered other factors such as how BSGR has been performing in the past. I suggest you continue to research B&S Group to get a better picture of the small-cap by looking at:
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