Investors are always looking for growth in small-cap stocks like Landmark Infrastructure Partners LP (NASDAQ:LMRK), with a market cap of $403.39M. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into LMRK here.
How does LMRK’s operating cash flow stack up against its debt?
Over the past year, LMRK has ramped up its debt from $308.0M to $337.3M – this includes both the current and long-term debt. With this rise in debt, LMRK’s cash and short-term investments stands at $2.7M for investing into the business. Moreover, LMRK has produced cash from operations of $21.5M over the same time period, resulting in an operating cash to total debt ratio of 0.06x, meaning that LMRK’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In LMRK’s case, it is able to generate 0.06x cash from its debt capital.
Can LMRK pay its short-term liabilities?
At the current liabilities level of $6.3M liabilities, it appears that the company has been able to meet these commitments with a current assets level of $9.9M, leading to a 1.56x current account ratio. Generally, for real estate companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can LMRK service its debt comfortably?
LMRK is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether LMRK is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interets and tax (EBIT) at least three times its net interest payments is considered financially sound. In LMRK’s, case, the ratio of 2.9x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
Are you a shareholder? LMRK’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, its high liquidity means the company should continue to operate smoothly in the case of adverse events. Given that its financial position may change. You should always be keeping on top of market expectations for LMRK’s future growth on our free analysis platform.
Are you a potential investor? LMRK’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. You should continue your analysis by taking a look at LMRK’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.
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.