Is Atlas Air Worldwide Holdings Inc (NASDAQ:AAWW) A Financially Sound Company?
While small-cap stocks, such as Atlas Air Worldwide Holdings Inc (NASDAQ:AAWW) with its market cap of US$1.57b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, I know these factors are very high-level, so I recommend you dig deeper yourself into AAWW here.
How much cash does AAWW generate through its operations?
AAWW has built up its total debt levels in the last twelve months, from US$2.15b to US$2.50b , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$234.3m for investing into the business. Additionally, AAWW has produced cash from operations of US$394.8m in the last twelve months, leading to an operating cash to total debt ratio of 15.8%, signalling that AAWW’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 AAWW’s case, it is able to generate 0.16x cash from its debt capital.
Does AAWW’s liquid assets cover its short-term commitments?
With current liabilities at US$787.1m, the company has not been able to meet these commitments with a current assets level of US$565.2m, leading to a 0.72x current account ratio. which is under the appropriate industry ratio of 3x.
Does AAWW face the risk of succumbing to its debt-load?
AAWW 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. We can test if AAWW’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For AAWW, the ratio of 2.83x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
Next Steps:
AAWW’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure AAWW has company-specific issues impacting its capital structure decisions. You should continue to research Atlas Air Worldwide Holdings to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AAWW’s future growth? Take a look at our free research report of analyst consensus for AAWW’s outlook.
Valuation: What is AAWW 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 AAWW 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 editorial-team@simplywallst.com.
