Is Baccarat SA A Financially Sound Company?

Baccarat SA (EPA: BCRA) is a small-cap stock with a market capitalization of €186.08m. 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? Companies operating in the Consumer Durables industry facing headwinds from current disruption, even ones that are profitable, are more likely to be 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. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into BCRA here. 바카라사이트

Over the past year, BCRA has reduced its debt from €41.55m to €39.29m , which comprises of short- and long-term debt. With this reduction in debt, BCRA’s cash and short-term investments stands at €29.28m for investing into the business. Additionally, BCRA has produced €8.07m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 20.54%, signalling that BCRA’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In BCRA’s case, it is able to generate .21x cash from its debt capital.

At the current liabilities level of €51.54m liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.01x. Usually, for Consumer Durables companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

With a debt-to-equity ratio of 75.07%, BCRA can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if BCRA’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For BCRA, the ratio of 7.89x suggests that interest is appropriately 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.