Investors are always looking for growth in small-cap stocks like Rosier SA (EBR:ENGB), with a market cap of €37m. However, an important fact which most ignore is: how financially healthy is the business? Given that ENGB is not presently profitable, it’s vital to understand the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, this is just a partial view of the stock, and I’d encourage you to dig deeper yourself into ENGB here.
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Does ENGB Produce Much Cash Relative To Its Debt?
Over the past year, ENGB has ramped up its debt from €28m to €46m – this includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at €58k , ready to be used for running the business. We note it produced negative cash flow over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can examine some of ENGB’s operating efficiency ratios such as ROA here.
Can ENGB meet its short-term obligations with the cash in hand?
With current liabilities at €71m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.35x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Chemicals 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.
Can ENGB service its debt comfortably?
With total debt exceeding equity, ENGB is considered a highly levered company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. But since ENGB is presently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
ENGB’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. I admit this is a fairly basic analysis for ENGB's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Rosier to get a better picture of the small-cap by looking at:
- Historical Performance: What has ENGB'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.
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 firstname.lastname@example.org. 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.