SkiStar AB (publ) (STO:SKIS B): Time For A Financial Health Check – Simply Wall St


While small-cap stocks, such as SkiStar AB (publ) (STO:SKIS B) with its market cap of kr8.4b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn.
Assessing first and foremost the financial health is
essential,
as mismanagement of capital can lead to bankruptcies,
which occur at a higher rate for small-caps.
The following basic checks can help you get a picture of the company’s balance sheet strength.
However,
this is not a comprehensive overview, so
I’d encourage you to
dig deeper yourself into SKIS B here.

SKIS B’s Debt (And Cash Flows)

SKIS B’s debt levels have fallen from kr1.4b to kr1.2b over the last 12 months
, which includes long-term debt.
With this
debt payback,
the current cash and short-term investment levels stands at kr149m
to keep the business going.
Moreover,
SKIS B has
generated
cash from operations of kr813m
over the same time period,
resulting in
an operating cash to total debt ratio of 71%,
meaning that
SKIS B’s
debt is appropriately covered by operating cash.

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

At the current liabilities level of kr1.6b,
the company
arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.48x.
The current ratio is the number you get when you divide current assets by current liabilities.


OM:SKIS B Historical Debt, April 12th 2019

OM:SKIS B Historical Debt, April 12th 2019

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

SKIS B is a relatively highly levered company with a debt-to-equity of 45%.
This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies.
No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In SKIS B’s case, the ratio
of 17.93x suggests that interest is comfortably covered, which means that
lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.

Next Steps:

Although SKIS B’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.
Keep in mind I haven’t considered other factors such as how SKIS B has been performing in the past.
You should
continue to research SkiStar to get a
more holistic view
of the stock by looking at:

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


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