While small-cap stocks, such as Air Industries Group (AMEX:AIRI) with its market cap of USD $32.36M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since AIRI is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into AIRI here.
How does AIRI’s operating cash flow stack up against its debt?
AIRI has shrunken its total debt levels in the last twelve months, from $44.8M to $37.0M , which comprises of short- and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at $1.3M for investing into the business. However, 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 examine some of AIRI’s operating efficiency ratios such as ROA here.
Can AIRI meet its short-term obligations with the cash in hand?
At the current liabilities level of $53.3M liabilities, the company has been able to meet these commitments with a current assets level of $56.2M, leading to a 1.05x current account ratio. For aerospace and defense companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is AIRI’s level of debt at an acceptable level?
With total debt exceeding equities, AIRI is considered a highly levered 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 AIRI is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Are you a shareholder? AIRI’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, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. Given that its financial position may be different. I recommend keeping on top of market expectations for AIRI’s future growth on our free analysis platform.
Are you a potential investor? AIRI’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. As a following step, you should take a look at AIRI’s past performance analysis on our free platform to conclude on AIRI’s financial health.
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.