Is CoAssets Limited’s (ASX:CA8) Balance Sheet Strong Enough To Weather A Storm?
Investors are always looking for growth in small-cap stocks like CoAssets Limited (ASX:CA8), with a market cap of AU$51.97M. However, an important fact which most ignore is: how financially healthy is the business? Internet companies, in particular ones that run negative earnings, are more likely to be higher risk. So, understanding the company’s financial health becomes vital. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into CA8 here.
Does CA8 generate enough cash through operations?
Over the past year, CA8 has ramped up its debt from S$793.38K to S$4.70M made up of predominantly near term debt. With this increase in debt, CA8 currently has S$2.10M remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can examine some of CA8’s operating efficiency ratios such as ROA here.
Does CA8’s liquid assets cover its short-term commitments?
Looking at CA8’s most recent S$5.79M 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 1.49x. Generally, for Internet companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does CA8 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 96.75%, CA8 can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since CA8 is presently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
CA8’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 an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how CA8 has been performing in the past. I suggest you continue to research CoAssets to get a more holistic view of the stock by looking at:
Historical Performance: What has CA8’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.
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.
