While small-cap stocks, such as Nautilus Marine Services PLC (AIM:NAUT) with its market cap of UK£2.53M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Oil and Gas companies, especially ones that are currently loss-making, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is essential. Here are few basic financial health checks you should consider before taking the plunge. However, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into NAUT here.
Does NAUT generate enough cash through operations?
Over the past year, NAUT has borrowed debt capital of around US$15.81M – this includes both the current and long-term debt. With this growth in debt, NAUT currently has US$16.76M remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can assess some of NAUT’s operating efficiency ratios such as ROA here.
Can NAUT pay its short-term liabilities?
At the current liabilities level of US$1.21M liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$21.23M, leading to a 17.53x current account ratio. However, anything about 3x may be excessive, since NAUT may be leaving too much capital in low-earning investments.
Is NAUT’s debt level acceptable?
With a debt-to-equity ratio of 87.84%, NAUT can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since NAUT is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
At its current level of cash flow coverage, NAUT has room for improvement to better cushion for events which may require debt repayment. Though, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure NAUT has company-specific issues impacting its capital structure decisions. You should continue to research Nautilus Marine Services to get a better picture of the stock by looking at:
- Valuation: What is NAUT 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 NAUT is currently mispriced by the market.
- Historical Performance: What has NAUT’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.