Investors are always looking for growth in small-cap stocks like TAS Tecnologia Avanzata dei Sistemi Sp.A. (BIT:TAS), with a market cap of €168.33M. However, an important fact which most ignore is: how financially healthy is the business? Software companies, especially ones that are currently loss-making, are inclined towards being higher risk. Assessing first and foremost the financial health is vital. I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I suggest you dig deeper yourself into TAS here.
Does TAS generate enough cash through operations?
TAS has shrunken its total debt levels in the last twelve months, from €21.85M to €4.21M – this includes both the current and long-term debt. With this debt repayment, TAS’s cash and short-term investments stands at €7.60M , ready to deploy into the business. On top of this, TAS has generated €342.00K in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 8.12%, indicating that TAS’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In TAS’s case, it is able to generate 0.081x cash from its debt capital.
Does TAS’s liquid assets cover its short-term commitments?
At the current liabilities level of €23.92M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of €34.12M, with a current ratio of 1.43x. For Software companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is TAS’s debt level acceptable?
TAS’s level of debt is appropriate relative to its total equity, at 26.89%. TAS is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. TAS’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
TAS’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure TAS has company-specific issues impacting its capital structure decisions. I suggest you continue to research TAS Tecnologia Avanzata dei Sistemi to get a more holistic view of the stock by looking at:
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