Are Foncière Euris SA's (EPA:EURS) Interest Costs Too High?
Investors are always looking for growth in small-cap stocks like Foncière Euris SA (EPA:EURS), with a market cap of €310m. However, an important fact which most ignore is: how financially healthy is the business? Given that EURS is not presently profitable, it’s crucial to assess 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. However, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into EURS here.
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
EURS’s Debt (And Cash Flows)
EURS's debt level has been constant at around €13b over the previous year – this includes long-term debt. At this constant level of debt, EURS currently has €4.1b remaining in cash and short-term investments , ready to be used for running the business. On top of this, EURS has generated €1.5b in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 12%, meaning that EURS’s debt is not covered by operating cash.
Does EURS’s liquid assets cover its short-term commitments?
With current liabilities at €18b, it appears that the company has been able to meet these commitments with a current assets level of €18b, leading to a 1.01x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. For Consumer Retailing companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.
Is EURS’s debt level acceptable?
Since total debt levels exceed equity, EURS is a highly 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 EURS is presently loss-making, 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 EURS’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for EURS's financial health. Other important fundamentals need to be considered alongside. You should continue to research Foncière Euris to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for EURS’s future growth? Take a look at our free research report of analyst consensus for EURS’s outlook.
Valuation: What is EURS 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 EURS 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.
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.
