OT Logistics S.A. (WSE:OTS) is a small-cap stock with a market capitalization of zł88m. 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? Given that OTS is not presently profitable, it’s essential to evaluate 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, this is just a partial view of the stock, and I recommend you dig deeper yourself into OTS here.

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Does OTS Produce Much Cash Relative To Its Debt?

OTS's debt levels have fallen from zł454m to zł427m over the last 12 months , which includes long-term debt. With this reduction in debt, OTS currently has zł45m remaining in cash and short-term investments to keep the business going. Additionally, OTS has produced zł47m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 11%, meaning that OTS’s operating cash is less than its debt.

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

With current liabilities at zł551m, the company may not have an easy time meeting these commitments with a current assets level of zł271m, leading to a current ratio of 0.49x. The current ratio is calculated by dividing current assets by current liabilities.

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

With a debt-to-equity ratio of 94%, OTS 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. But since OTS is presently loss-making, there’s a question of sustainability of its current operations. 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 OTS’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. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for OTS's financial health. Other important fundamentals need to be considered alongside. You should continue to research OT Logistics to get a more holistic view of the stock by looking at:

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

2. Historical Performance: What has OTS'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.

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.