While small-cap stocks, such as Accsys Technologies PLC (LON:AXS) with its market cap of UK£119m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since AXS 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. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into AXS here.
How much cash does AXS generate through its operations?
AXS has built up its total debt levels in the last twelve months, from €23m to €43m – this includes both the current and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at €40m , ready to deploy 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. For this article’s sake, I won’t be looking at this today, but you can take a look at some of AXS’s operating efficiency ratios such as ROA here.
Can AXS pay its short-term liabilities?
At the current liabilities level of €21m liabilities, the company has been able to meet these commitments with a current assets level of €64m, leading to a 2.97x current account ratio. For Forestry 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.
Does AXS face the risk of succumbing to its debt-load?
AXS is a relatively highly levered company with a debt-to-equity of 59%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since AXS is currently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
AXS’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how AXS has been performing in the past. I suggest you continue to research Accsys Technologies to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AXS’s future growth? Take a look at our free research report of analyst consensus for AXS’s outlook.
- Historical Performance: What has AXS’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.
- 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 firstname.lastname@example.org.