Investors are always looking for growth in small-cap stocks like Biom’Up S.A. (

EPA:BUP

),how to grow dahlias in minnesota with a market cap of €64m. However, an important fact which most ignore is: how financially healthy is the business? Medical Equipment companies, especially ones that are currently loss-making, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is vital. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I recommend you

dig deeper yourself into BUP here

.

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

BUP has built up its total debt levels in the last twelve months, from €11m to €27m – this includes long-term debt. With this rise in debt, BUP’s cash and short-term investments stands at €44m for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of BUP’s

operating efficiency ratios such as ROA here

.

Can BUP pay its short-term liabilities?

With current liabilities at €7.6m, the company has been able to meet these obligations given the level of current assets of €51m, with a current ratio of 6.75x. Having said that, many consider a ratio above 3x to be high.

ENXTPA:BUP Historical Debt January 1st 19

Is BUP’s debt level acceptable?

BUP is a relatively highly levered company with a debt-to-equity of 65%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since BUP is presently loss-making, 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 BUP’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for BUP’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Biom’Up to get a better picture of the small-cap by looking at:

Future Outlook

: What are well-informed industry analysts predicting for BUP’s future growth? Take a look at our

free research report of analyst consensus

for BUP’s outlook.

Valuation

: What is BUP 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 BUP 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

.

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

[email protected]

.

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