How Financially Strong Is Brighter AB (publ) (STO:BRIG)?
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While small-cap stocks, such as Brighter AB (publ) (STO:BRIG) with its market cap of kr797m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that BRIG is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. Let's work through some financial health checks you may wish to consider if you're interested in this stock. Nevertheless, potential investors would need to take a closer look, and I recommend you dig deeper yourself into BRIG here.
BRIG’s Debt (And Cash Flows)
BRIG's debt levels surged from kr8.5m to kr49m over the last 12 months made up of predominantly near term debt. With this growth in debt, the current cash and short-term investment levels stands at kr8.2m , ready to be used for running the business. Its negative operating cash flow means calculating cash-to-debt wouldn't be useful. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of BRIG’s operating efficiency ratios such as ROA here.
Does BRIG’s liquid assets cover its short-term commitments?
At the current liabilities level of kr63m, it seems that the business may not have an easy time meeting these commitments with a current assets level of kr47m, leading to a current ratio of 0.75x. The current ratio is calculated by dividing current assets by current liabilities.
Does BRIG face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 46%, BRIG can be considered as an above-average leveraged company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. However, since BRIG is currently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
Although BRIG’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. Though 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 BRIG has been performing in the past. I recommend you continue to research Brighter to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for BRIG’s future growth? Take a look at our free research report of analyst consensus for BRIG’s outlook.
Historical Performance: What has BRIG'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.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
