Yahoo Movies What You Must Know About Bravida Holding AB (publ)’s (STO:BRAV) Financial Strength
Bravida Holding AB (publ) (OM:BRAV) is a small-cap stock with a market capitalization of KR14.01B. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? 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. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I suggest you dig deeper yourself into BRAV here.
Does BRAV generate an acceptable amount of cash through operations?
BRAV has sustained its debt level by about KR2.70B 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 KR839.00M for investing into the business. Additionally, BRAV has generated KR1.04B in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 38.43%, indicating that BRAV’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In BRAV’s case, it is able to generate 0.38x cash from its debt capital.
Can BRAV pay its short-term liabilities?
Looking at BRAV’s most recent KR6.64B liabilities, it seems that the business is not able to meet these obligations given the level of current assets of KR5.36B, with a current ratio of 0.81x below the prudent level of 3x.
Is BRAV’s debt level acceptable?
BRAV’s level of debt is appropriate relative to its total equity, at 38.50%. BRAV is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if BRAV’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 BRAV, the ratio of 29.43x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as BRAV’s high interest coverage is seen as responsible and safe practice.
Next Steps:
BRAV’s debt level is appropriate for a company its size. Furthermore, it is able to generate sufficient cash flow coverage, meaning it is able to put its debt in good use. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how BRAV has been performing in the past. I recommend you continue to research Bravida Holding to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for BRAV’s future growth? Take a look at our free research report of analyst consensus for BRAV’s outlook.
Valuation: What is BRAV 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 BRAV 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 pass 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.
