What does TAS Tecnologia Avanzata dei Sistemi SpA’s (BIT:TAS) Balance Sheet Tell Us About Its Future?

Investors are always looking for growth in small-cap stocks like TAS Tecnologia Avanzata dei Sistemi SpA (BIT:TAS), with a market cap of €133m. However, an important fact which most ignore is: how financially healthy is the business?
Companies operating in the Software industry,
in particular ones that run negative earnings,
are inclined towards being higher risk.
Evaluating financial health as part of your investment thesis is
crucial.
I believe these basic checks tell most of the story you need to know.
Nevertheless,
this commentary is still very high-level, so
I recommend you
dig deeper yourself into TAS here.

How does TAS’s operating cash flow stack up against its debt?

Over the past year, TAS has maintained its debt levels at around €6m
– this includes both the current and long-term debt.
At this
constant
level of debt,
TAS currently has €5m remaining in cash and short-term investments
for investing into the business.
Moreover,
TAS has
generated
€6m in operating cash flow
over the same time period,
leading to
an operating cash to total debt ratio of 94%,
indicating that
TAS’s
debt is appropriately covered by operating cash.
This ratio can also be interpreted as a measure of efficiency
for
unprofitable
businesses
since metrics
such as return on asset (ROA) requires
positive earnings.
In TAS’s case, it is able to generate 0.94x cash from its debt capital.

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

With current liabilities at €22m,
it appears that the company
has been able to meet these commitments with a current assets level of €28m, leading to a 1.3x current account ratio.
For Software 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.


BIT:TAS Historical Debt October 30th 18
BIT:TAS Historical Debt October 30th 18

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

With a debt-to-equity ratio of 28%, TAS’s debt level may be seen as prudent.
This range is considered safe as TAS is not taking on too much debt obligation,
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.

Next Steps:

TAS’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow.
In addition to this,
the company exhibits proper management of current assets and upcoming liabilities.
I admit this is a fairly basic analysis for TAS’s financial health. Other important fundamentals need to be considered alongside.
You should
continue to research TAS Tecnologia Avanzata dei Sistemi to get a
more holistic view
of the stock by looking at:

  1. Valuation: What is TAS 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 TAS is currently mispriced by the market.
  2. Historical Performance: What has TAS’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.
  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.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

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