ACRON HELVETIA I Immobilien Aktiengesellschaft (BRSE:AHAN) is a small-cap stock with a market capitalization of CHF3.85M. 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? Since AHAN is loss-making right now, it’s essential to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into AHAN here.

Does AHAN generate enough cash through operations?

Over the past year, AHAN has maintained its debt levels at around CHF22.35M comprising of short- and long-term debt. At this current level of debt, AHAN’s cash and short-term investments stands at CHF672.59K , ready to deploy into the business. On top of this, AHAN has generated cash from operations of CHF1.12M during the same period of time, leading to an operating cash to total debt ratio of 5.01%, indicating that AHAN’s debt is not 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 AHAN’s case, it is able to generate 0.05x cash from its debt capital.

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

With current liabilities at CHF22.82M, the company is not able to meet these obligations given the level of current assets of CHF917.63K, with a current ratio of 0.04x below the prudent level of 3x.

Is AHAN’s debt level acceptable?

AHAN is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since AHAN is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

AHAN’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for AHAN’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research ACRON HELVETIA I Immobilien to get a better picture of the stock by looking at:

• 1. Valuation: What is AHAN 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 AHAN is currently mispriced by the market.

• 2. Historical Performance: What has AHAN’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 pass 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.