What does EQTEC plc’s (LON:EQT) Balance Sheet Tell Us About Its Future?
While small-cap stocks, such as EQTEC plc (LON:EQT) with its market cap of UK£17m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since EQT is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into EQT here.
How does EQT’s operating cash flow stack up against its debt?
Over the past year, EQT has ramped up its debt from €2.7m to €5.3m , which accounts for long term debt. With this growth in debt, EQT’s cash and short-term investments stands at €185k , ready to deploy 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 examine some of EQT’s operating efficiency ratios such as ROA here.
Can EQT pay its short-term liabilities?
With current liabilities at €4.3m, it appears that the company may not have an easy time meeting these commitments with a current assets level of €2.3m, leading to a current ratio of 0.53x.
Does EQT face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 35%, EQT’s debt level may be seen as prudent. This range is considered safe as EQT is not taking on too much debt obligation, which may be constraining for future growth. EQT’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:
EQT has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. But, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure EQT has company-specific issues impacting its capital structure decisions. You should continue to research EQTEC to get a more holistic view of the stock by looking at:
Valuation: What is EQT 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 EQT is currently mispriced by the market.
Historical Performance: What has EQT’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 editorial-team@simplywallst.com.
