American Lorain Corporation (AMEX:ALN) is a small-cap stock with a market capitalization of US$7.69M. 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? Given that ALN is not presently profitable, it’s crucial 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. Nevertheless, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into ALN here.
How does ALN’s operating cash flow stack up against its debt?
Over the past year, ALN has maintained its debt levels at around US$52.62M . At this constant level of debt, ALN’s cash and short-term investments stands at US$426.05K for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can examine some of ALN’s operating efficiency ratios such as ROA here.
Can ALN meet its short-term obligations with the cash in hand?
At the current liabilities level of US$82.16M liabilities, the company is not able to meet these obligations given the level of current assets of US$66.82M, with a current ratio of 0.81x below the prudent level of 3x.
Does ALN face the risk of succumbing to its debt-load?
With debt reaching 95.89% of equity, ALN may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since ALN is presently unprofitable, 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.
ALN’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for ALN’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research American Lorain to get a more holistic view of the stock by looking at the areas below. Just a heads up – to access some parts of the Simply Wall St research tool you might be asked to create a free account, but it takes just one click and the information they provide is definitely worth it in my opinion.
- 1. Valuation: What is ALN worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in this free research report helps visualize whether ALN is currently mispriced by the market.
- 2. Historical Performance: What has ALN’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 ALN’s historicals for more clarity.
- 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore a 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.