Investors are always looking for growth in small-cap stocks like Eagle Bulk Shipping Inc (NASDAQ:EGLE), with a market cap of US$409.0m. However, an important fact which most ignore is: how financially healthy is the business? Given that EGLE is not presently profitable, it’s vital to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into EGLE here.
How much cash does EGLE generate through its operations?
Over the past year, EGLE has ramped up its debt from US$297.0m to US$321.8m , which is made up of current and long term debt. With this increase in debt, EGLE currently has US$76.9m remaining in cash and short-term investments , ready to deploy into the business. On top of this, EGLE has produced cash from operations of US$37.4m over the same time period, leading to an operating cash to total debt ratio of 11.6%, indicating that EGLE’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for loss making businesses since metrics such as return on asset (ROA) requires positive earnings. In EGLE’s case, it is able to generate 0.12x cash from its debt capital.
Can EGLE pay its short-term liabilities?
At the current liabilities level of US$42.6m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.76x. Usually, for Shipping companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can EGLE service its debt comfortably?
With a debt-to-equity ratio of 68.5%, EGLE can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since EGLE is presently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
EGLE’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how EGLE has been performing in the past. I recommend you continue to research Eagle Bulk Shipping to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for EGLE’s future growth? Take a look at our free research report of analyst consensus for EGLE’s outlook.
- Valuation: What is EGLE 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 EGLE 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 firstname.lastname@example.org.