While small-cap stocks, such as Avalon Holdings Corporation (AMEX:AWX) with its market cap of US$7.91M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that AWX is not presently profitable, it’s vital to evaluate the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, I know these factors are very high-level, so I recommend you dig deeper yourself into AWX here.
Does AWX generate enough cash through operations?
Over the past year, AWX has ramped up its debt from US$8.31M to US$12.38M , which comprises of short- and long-term debt. With this increase in debt, AWX’s cash and short-term investments stands at US$2.30M for investing into the business. Additionally, AWX has produced US$2.59M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 20.91%, meaning that AWX’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In AWX’s case, it is able to generate 0.21x cash from its debt capital.
Does AWX’s liquid assets cover its short-term commitments?
With current liabilities at US$14.68M, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.02x. For Commercial Services companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is AWX’s debt level acceptable?
With debt at 30.50% of equity, AWX may be thought of as appropriately levered. This range is considered safe as AWX is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for AWX, and the company also has the ability and headroom to increase debt if needed going forward.
AWX’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. 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 AWX’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Avalon Holdings to get a better picture of the stock by looking at the areas below. Just a heads up – to access some parts of the Simply Wall St research tool you might be asked to create a free account, but it takes just one click and the information they provide is definitely worth it in my opinion.
- 1. Valuation: What is AWX worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in this free research report helps visualize whether AWX is currently mispriced by the market.
- 2. Historical Performance: What has AWX’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 AWX’s historicals for more clarity.
- 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore a 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.