Inform P. Lykos S.A. (ATH:LYK) is a small-cap stock with a market capitalization of €19m. 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 LYK is not presently profitable, it’s vital to understand the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company's balance sheet strength. However, this is just a partial view of the stock, and I’d encourage you to dig deeper yourself into LYK here.
LYK’s Debt (And Cash Flows)
LYK's debt level has been constant at around €19m over the previous year including long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at €4.2m , ready to be used for running the business. On top of this, LYK has generated cash from operations of €7.5m in the last twelve months, leading to an operating cash to total debt ratio of 40%, meaning that LYK’s current level of operating cash is high enough to cover debt.
Does LYK’s liquid assets cover its short-term commitments?
Looking at LYK’s €32m in current liabilities, it appears that the company may not be able to easily meet these obligations given the level of current assets of €25m, with a current ratio of 0.79x. The current ratio is the number you get when you divide current assets by current liabilities.
Can LYK service its debt comfortably?
With a debt-to-equity ratio of 42%, LYK can be considered as an above-average leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. However, since LYK 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.
LYK’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. Though 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 LYK has company-specific issues impacting its capital structure decisions. I suggest you continue to research Inform P. Lykos to get a more holistic view of the stock by looking at:
- Valuation: What is LYK 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 LYK is currently mispriced by the market.
- Historical Performance: What has LYK'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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