Investors are always looking for growth in small-cap stocks like Art’s-Way Manufacturing Co Inc (NASDAQ:ARTW), with a market cap of USD $10.40M. However, an important fact which most ignore is: how financially healthy is the company? The significance of doing due diligence on a company’s financial strength stems from the fact that over 20,000 companies go bankrupt in every quarter in the US alone. Here are few basic financial health checks to judge whether a company fits the bill or there is an additional risk which you should consider before taking the plunge. View our latest analysis for Art’s-Way Manufacturing
Does ARTW generate an acceptable amount of cash through operations?
Unxpected adverse events, such as natural disasters and wars, can be a true test of a company’s capacity to meet its obligations. These adverse events bring devastation and yet does not absolve the company from its debt. Can ARTW pay off what it owes to its debtholder by using only cash from its operational activities? Last year, ARTW’s operating cash flow was 0.14x its current debt. This means, over a tenth of ARTW’s near term debt can be covered by its day-to-day cash income, which somewhat reduces its riskiness to its debtholders.
Can ARTW pay its short-term liabilities?
What about its other commitments such as payments to suppliers and salaries to its employees? In times of adverse events, ARTW may need to liquidate its short-term assets to pay these immediate obligations. We test for ARTW’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that ARTW does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Does ARTW face the risk of succumbing to its debt-load?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. In the case of ARTW, the debt-to-equity ratio is 37.81%, which means its debt level does not pose a threat to its operations right now.
Are you a shareholder? 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. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Given that its financial position may be different. I recommend keeping on top of market expectations for ARTW’s future growth on our free analysis platform.
Are you a potential investor? Art’s-Way Manufacturing currently has financial flexibility to ramp up growth in the future. Furthermore, its high liquidity means the company should continue to operate smoothly in the case of adverse events. To gain more conviction in the stock, you need to also examine the company’s track record. I encourage you to continue your research by taking a look at ARTW’s past performance analysis on our free platform to figure out ARTW’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.