What does Eagle Eye Solutions Group plc’s (LON:EYE) Balance Sheet Tell Us About Its Future?
Eagle Eye Solutions Group plc (LON:EYE) is a small-cap stock with a market capitalization of UK£37m. 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? IT companies, especially ones that are currently loss-making, tend to be high risk. So, understanding the company’s financial health becomes crucial. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into EYE here.
Does EYE produce enough cash relative to debt?
EYE has increased its debt level by about UK£1.1m over the last 12 months , which is mainly comprised of near term debt. With this increase in debt, EYE currently has UK£1.5m remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can take a look at some of EYE’s operating efficiency ratios such as ROA here.
Can EYE meet its short-term obligations with the cash in hand?
With current liabilities at UK£5.2m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.12x. Usually, for IT companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does EYE face the risk of succumbing to its debt-load?
EYE’s level of debt is appropriate relative to its total equity, at 17%. EYE is not taking on too much debt commitment, which may be constraining for future growth. EYE’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
EYE has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for EYE’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Eagle Eye Solutions Group to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for EYE’s future growth? Take a look at our free research report of analyst consensus for EYE’s outlook.
Valuation: What is EYE 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 EYE 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 editorial-team@simplywallst.com.
