How Financially Strong Is Armadale Capital Plc (AIM:ACP)?
While small-cap stocks, such as Armadale Capital Plc (AIM:ACP) with its market cap of GBP £4.67M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Why is it important? A major downturn in the energy industry has resulted in over 150 companies going bankrupt and has put more than 100 on the verge of a collapse, primarily due to excessive debt. Thus, it becomes utmost important for an investor to test a company’s resilience for such contingencies. In simple terms, I believe these three small calculations tell most of the story you need to know. Check out our latest analysis for Armadale Capital
Does ACP generate an acceptable amount of cash through operations?
There are many headwinds that come unannounced, such as natural disasters and political turmoil, which can challenge a small business and its ability to adapt and recover. These adverse events bring devastation and yet does not absolve the company from its debt. Can ACP pay off what it owes to its debtholder by using only cash from its operational activities? In the case of ACP, operating cash flow turned out to be -0.59x its debt level over the past twelve months. This means what ACP can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at ACP’s operations at this point in time.
Can ACP pay its short-term liabilities?
In addition to debtholders, a company must be able to pay its bills and salaries to keep the business running. During times of unfavourable events, ACP could be required to liquidate some of its assets to meet these upcoming payments, as cash flow from operations is hindered. We test for ACP’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that ACP does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Can ACP service its debt comfortably?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. ACP’s debt-to-equity ratio stands at 4.76%, which means debt is low and does not pose any significant threat to the company’s operations.
Next Steps:
Are you a shareholder? Although ACP’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. Furthermore, the company may struggle to meet its near term liabilities should an adverse event occur. Given that its financial position may change. I recommend keeping on top of market expectations for ACP’s future growth on our free analysis platform.
Are you a potential investor? ACP seems to have maintained a sensible level of debt, which means there’s still some headroom to grow debt funding. But its current cash flow coverage of existing debt, in addition to the low liquidity, is concerning. However, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of ACP’s track record. You should continue your analysis by taking a look at ACP’s past performance analysis on our free platform to conclude on ACP’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.
