【elison independent living at willowbrook】Is Intek Group S.p.A.’s (BIT:IKG) Balance Sheet A Threat To Its Future?

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

BIT:IKG

),elison independent living at willowbrook with a market cap of €135m. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, this commentary is still very high-level, so I’d encourage you to

dig deeper yourself into IKG here

.

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

Over the past year, IKG has ramped up its debt from €112m to €118m – this includes long-term debt. With this increase in debt, the current cash and short-term investment levels stands at €53m for investing into the business. Additionally, IKG has generated cash from operations of €55m in the last twelve months, resulting in an operating cash to total debt ratio of 47%, signalling that IKG’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In IKG’s case, it is able to generate 0.47x cash from its debt capital.

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

At the current liabilities level of €18m, the company has been able to meet these obligations given the level of current assets of €77m, with a current ratio of 4.2x. However, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.

BIT:IKG Historical Debt January 1st 19

Does IKG face the risk of succumbing to its debt-load?

IKG’s level of debt is appropriate relative to its total equity, at 25%. IKG is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether IKG is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In IKG’s, case, the ratio of 9.37x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving IKG ample headroom to grow its debt facilities.

Next Steps:

IKG’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure IKG has company-specific issues impacting its capital structure decisions. I recommend you continue to research Intek Group to get a more holistic view of the stock by looking at:

Story continues

Future Outlook

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

free research report of analyst consensus

for IKG’s outlook.

Valuation

: What is IKG 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 IKG 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

.

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

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