Digital Turbine Inc (APPS): Time For A Financial Health Check
Investors are always looking for growth in small-cap stocks like Digital Turbine Inc (NASDAQ:APPS), with a market cap of USD $104.58M. However, an important fact which most ignore is: how financially healthy is the company? Why is it important? A major downturn in the energy industry has resulted in over 150 companies going bankrupt and has put more than 100 on the verge of a collapse, primarily due to excessive debt. Thus, it becomes utmost important for an investor to test a company’s resilience for such contingencies. In simple terms, I believe these three small calculations tell most of the story you need to know. View our latest analysis for Digital Turbine
Does APPS generate an acceptable amount of cash through operations?
While failure to manage cash has been one of the major reasons behind the demise of a lot of small businesses, mismanagement comes into the light during tough situations such as an economic recession. Furthermore, failure to service debt can hurt its reputation, making funding expensive in the future. We can test the impact of these adverse events by looking at whether cash from its current operations can pay back its current debt obligations. Last year, APPS’s operating cash flow was -0.61x its current debt. This means what APPS can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at APPS’s operations at this point in time.
Can APPS meet its short-term obligations with the cash in hand?
What about its other commitments such as payments to suppliers and salaries to its employees? In times of adverse events, APPS may need to liquidate its short-term assets to pay these immediate obligations. We test for APPS’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that APPS is unable to meet all of its upcoming commitments with its cash and other short-term assets. While this is not abnormal for companies, as their cash is better invested in the business or returned to investors than lying around, it does bring about some concerns should any unfavourable circumstances arise.
Can APPS service its debt comfortably?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. In the case of APPS, the debt-to-equity ratio is 20.38%, which means its debt level does not pose a threat to its operations right now.
Next Steps:
Are you a shareholder? Although APPS’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. In addition to this, the company may not be able to pay all of its upcoming liabilities from its current short-term assets. Given that its financial position may be different. You should always be keeping on top of market expectations for APPS’s future growth on our free analysis platform.
Are you a potential investor? APPS seems to have a sensible level of debt, meaning there’s some room to take on more debt if needed. But its current cash flow coverage of existing debt, in addition to the low liquidity, is concerning. Though, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of APPS’s track record. You should continue your analysis by taking a look at APPS’s past performance analysis on our free platform to figure out APPS’s financial health position.
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.
