Investors are always looking for growth in small-cap stocks like Art’s-Way Manufacturing Co Inc. (NASDAQ:ARTW), with a market cap of US$11.02M. However, an important fact which most ignore is: how financially healthy is the business? Since ARTW is loss-making right now, it’s essential to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into ARTW here.
Does ARTW generate an acceptable amount of cash through operations?
Over the past year, ARTW has reduced its debt from US$6.48M to US$5.43M , which comprises of short- and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at US$212.40K , ready to deploy into the business. On top of this, ARTW has produced US$747.40K in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 13.76%, meaning that ARTW’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for loss making businesses since metrics such as return on asset (ROA) requires positive earnings. In ARTW’s case, it is able to generate 0.14x cash from its debt capital.
Does ARTW’s liquid assets cover its short-term commitments?
Looking at ARTW’s most recent US$5.05M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$14.43M, with a current ratio of 2.86x. Usually, for Machinery companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does ARTW face the risk of succumbing to its debt-load?
ARTW’s level of debt is appropriate relative to its total equity, at 33.97%. ARTW is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for ARTW, and the company also has the ability and headroom to increase debt if needed going forward.
Although ARTW’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 ARTW’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Art’s-Way Manufacturing to get a more holistic view of the stock by looking at:
- 1. Valuation: What is ARTW 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 ARTW is currently mispriced by the market.
- 2. Historical Performance: What has ARTW’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.