Yahoo Finance What does Groupe Partouche SA’s (EPA:PARP) Balance Sheet Tell Us About Its Future?
Investors are always looking for growth in small-cap stocks like Groupe Partouche SA (EPA:PARP), with a market cap of €19m. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into PARP here.
How does PARP’s operating cash flow stack up against its debt?
PARP has sustained its debt level by about €153m over the last 12 months comprising of short- and long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at €111m for investing into the business. Additionally, PARP has produced €59m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 39%, indicating that PARP’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 PARP’s case, it is able to generate 0.39x cash from its debt capital.
Can PARP pay its short-term liabilities?
With current liabilities at €160m, it appears that the company has been able to meet these obligations given the level of current assets of €165m, with a current ratio of 1.03x. For Hospitality 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.
Does PARP face the risk of succumbing to its debt-load?
PARP is a relatively highly levered company with a debt-to-equity of 40%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if PARP’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 PARP, the ratio of 8.62x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving PARP ample headroom to grow its debt facilities.
Next Steps:
Although PARP’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 PARP’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Groupe Partouche to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for PARP’s future growth? Take a look at our free research report of analyst consensus for PARP’s outlook.
Historical Performance: What has PARP’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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
