Are Ainsworth Game Technology Limited’s (ASX:AGI) Interest Costs Too High?
Investors are always looking for growth in small-cap stocks like Ainsworth Game Technology Limited (ASX:AGI), with a market cap of AU$413.98M. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into AGI here.
Does AGI generate an acceptable amount of cash through operations?
AGI has sustained its debt level by about AU$65.69M over the last 12 months comprising of short- and long-term debt. At this constant level of debt, AGI currently has AU$21.09M remaining in cash and short-term investments for investing into the business. Moreover, AGI has produced AU$5.24M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 7.97%, meaning that AGI’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In AGI’s case, it is able to generate 0.08x cash from its debt capital.
Can AGI pay its short-term liabilities?
At the current liabilities level of AU$49.81M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.76x. Though, a ratio greater than 3x may be considered as too high, as AGI could be holding too much capital in a low-return investment environment.
Does AGI face the risk of succumbing to its debt-load?
With debt at 19.44% of equity, AGI may be thought of as appropriately levered. This range is considered safe as AGI is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
Next Steps:
Although AGI’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for AGI’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Ainsworth Game Technology to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AGI’s future growth? Take a look at our free research report of analyst consensus for AGI’s outlook.
Valuation: What is AGI 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 AGI 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 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.
