Dynasil Corporation of America (NASDAQ:DYSL) is a small-cap stock with a market capitalization of $20.20M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Companies operating in the electronic industry, even ones that are profitable, tend to be high risk. Evaluating financial health as part of your investment thesis is crucial. 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 recommend you dig deeper yourself into DYSL here.
How does DYSL’s operating cash flow stack up against its debt?
Over the past year, DYSL has reduced its debt from $6.6M to $3.2M , which comprises of short- and long-term debt. With this reduction in debt, DYSL’s cash and short-term investments stands at $2.4M , ready to deploy into the business. Additionally, DYSL has generated $1.5M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 46.15%, meaning that DYSL’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In DYSL’s case, it is able to generate 0.46x cash from its debt capital.
Can DYSL pay its short-term liabilities?
At the current liabilities level of $7.3M liabilities, the company has been able to meet these commitments with a current assets level of $12.4M, leading to a 1.71x current account ratio. For electronic companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Is DYSL’s level of debt at an acceptable level?
With debt at 15.78% of equity, DYSL may be thought of as appropriately levered. DYSL is not taking on too much debt commitment, which may be constraining for future growth.
Are you a shareholder? DYSL’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. In the future, its financial position may change. I suggest researching market expectations for DYSL’s future growth on our free analysis platform.
Are you a potential investor? DYSL’s relatively safe debt levels is even more impressive due to its ability to generate high cash flow, which illustrates operating efficiency. In addition, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. To gain more confidence in the stock, you need to also analyse the company’s track record. I encourage you to continue your research by taking a look at DYSL’s past performance analysis on our free platform to figure out DYSL’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.