Investors are always looking for growth in small-cap stocks like PLC S.p.A. (

BIT:PLC

),excision the armory with a market cap of €47m. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis 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. Nevertheless, since I only look at basic financial figures, I recommend you

dig deeper yourself into PLC here

.

How does PLC’s operating cash flow stack up against its debt?

Over the past year, PLC has ramped up its debt from €1.1m to €5.2m , which includes long-term debt. With this rise in debt, PLC’s cash and short-term investments stands at €6.6m for investing into the business. On top of this, PLC has generated €21m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 408%, indicating that PLC’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 PLC’s case, it is able to generate 4.08x cash from its debt capital.

Does PLC’s liquid assets cover its short-term commitments?

At the current liabilities level of €27m, the company has been able to meet these obligations given the level of current assets of €38m, with a current ratio of 1.44x. Generally, for Real Estate 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.

BIT:PLC Historical Debt January 1st 19

Can PLC service its debt comfortably?

With debt at 20% of equity, PLC may be thought of as appropriately levered. PLC is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.

Next Steps:

PLC’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure PLC has company-specific issues impacting its capital structure decisions. You should continue to research PLC to get a more holistic view of the stock by looking at:

Future Outlook

: What are well-informed industry analysts predicting for PLC’s future growth? Take a look at our

free research report of analyst consensus

for PLC’s outlook.

Historical Performance

: What has PLC’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

[email protected]

.

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