While small-cap stocks, such as Flanigan’s Enterprises Inc (NYSEMKT:BDL) with its market cap of US$49m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes crucial, since poor capital management may bring about 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, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into BDL here.
How much cash does BDL generate through its operations?
BDL’s debt levels surged from US$13m to US$15m over the last 12 months , which includes long-term debt. With this rise in debt, BDL currently has US$14m remaining in cash and short-term investments for investing into the business. Moreover, BDL has generated cash from operations of US$9.4m during the same period of time, resulting in an operating cash to total debt ratio of 62%, signalling that BDL’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In BDL’s case, it is able to generate 0.62x cash from its debt capital.
Can BDL meet its short-term obligations with the cash in hand?
Looking at BDL’s US$13m in current liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.58x. For Hospitality companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Can BDL service its debt comfortably?
BDL’s level of debt is appropriate relative to its total equity, at 37%. BDL is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether BDL is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In BDL’s, case, the ratio of 10.97x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
BDL’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for BDL’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Flanigan’s Enterprises to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BDL’s future growth? Take a look at our free research report of analyst consensus for BDL’s outlook.
- Valuation: What is BDL 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 BDL 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 email@example.com.