Investors are always looking for growth in small-cap stocks like AirBoss of America Corp (TSE:BOS), with a market cap of CA$284.7m. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into BOS here.
How does BOS’s operating cash flow stack up against its debt?
Over the past year, BOS has reduced its debt from US$71.5m to US$66.9m – this includes both the current and long-term debt. With this reduction in debt, BOS currently has US$12.5m remaining in cash and short-term investments for investing into the business. On top of this, BOS has produced cash from operations of US$6.0m over the same time period, resulting in an operating cash to total debt ratio of 9.0%, signalling that BOS’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In BOS’s case, it is able to generate 0.09x cash from its debt capital.
Can BOS pay its short-term liabilities?
With current liabilities at US$42.0m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.86x. Generally, for Chemicals companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does BOS face the risk of succumbing to its debt-load?
With debt reaching 55.1% of equity, BOS may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether BOS is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In BOS’s, case, the ratio of 7.96x 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.
BOS’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 proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure BOS has company-specific issues impacting its capital structure decisions. I recommend you continue to research AirBoss of America to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BOS’s future growth? Take a look at our free research report of analyst consensus for BOS’s outlook.
- Valuation: What is BOS 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 BOS 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@example.com.