Nixu Oyj (HEL:NIXU) is a small-cap stock with a market capitalization of €88m. 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? Since NIXU is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. However, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into NIXU here.

NIXU’s Debt (And Cash Flows)

NIXU has shrunk its total debt levels in the last twelve months, from €8.5m to €7.2m , which includes long-term debt. With this debt repayment, the current cash and short-term investment levels stands at €9.3m , ready to be used for running the business. We note it produced negative cash flow over the last twelve months. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of NIXU’s operating efficiency ratios such as ROA here.

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

With current liabilities at €16m, it seems that the business has been able to meet these commitments with a current assets level of €21m, leading to a 1.32x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Generally, for IT companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

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

With a debt-to-equity ratio of 43%, NIXU 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. Though, since NIXU is currently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

NIXU’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I'm sure NIXU has company-specific issues impacting its capital structure decisions. You should continue to research Nixu Oyj to get a more holistic view of the small-cap by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for NIXU’s future growth? Take a look at our free research report of analyst consensus for NIXU’s outlook.

2. Valuation: What is NIXU 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 NIXU is currently mispriced by the market.

3. 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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.