You Might Like Consti Yhtiöt Oyj (HEL:CONSTI) But Do You Like Its Debt?
Consti Yhtiöt Oyj (HEL:CONSTI) is a small-cap stock with a market capitalization of €42m. 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 CONSTI is not presently profitable, it’s vital to assess 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 CONSTI here.
CONSTI’s Debt (And Cash Flows)
Over the past year, CONSTI has maintained its debt levels at around €23m including long-term debt. At this constant level of debt, CONSTI currently has €3.2m remaining in cash and short-term investments to keep the business going. Moving on, operating cash flow was negative over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can take a look at some of CONSTI’s operating efficiency ratios such as ROA here.
Can CONSTI pay its short-term liabilities?
Looking at CONSTI’s €68m in current liabilities, the company may not have an easy time meeting these commitments with a current assets level of €57m, leading to a current ratio of 0.83x. The current ratio is the number you get when you divide current assets by current liabilities.
Can CONSTI service its debt comfortably?
With a debt-to-equity ratio of 97%, CONSTI 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. Though, since CONSTI 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:
Although CONSTI’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 lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for CONSTI's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Consti Yhtiöt Oyj to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for CONSTI’s future growth? Take a look at our free research report of analyst consensus for CONSTI’s outlook.
Valuation: What is CONSTI 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 CONSTI 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.
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