How Financially Strong Is ASV Holdings Inc (NASDAQ:ASV)?
Investors are always looking for growth in small-cap stocks like ASV Holdings Inc (NASDAQ:ASV), with a market cap of $79.18M. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into ASV here.
Does ASV generate enough cash through operations?
ASV has shrunken its total debt levels in the last twelve months, from $48.3M to $44.9M , which is made up of current and long term debt. With this debt repayment, ASV currently has $0.6M remaining in cash and short-term investments for investing into the business. Additionally, ASV has generated $2.4M in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 0.05x, signalling that ASV’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In ASV’s case, it is able to generate 0.05x cash from its debt capital.
Can ASV pay its short-term liabilities?
With current liabilities at $23.7M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.01x. For machinery companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can ASV service its debt comfortably?
With a debt-to-equity ratio of 37.99%, ASV’s debt level may be seen as prudent. This range is considered safe as ASV is not taking on too much debt obligation, which may be constraining for future growth. We can test if ASV’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For ASV, the ratio of 1.67x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
Next Steps:
Are you a shareholder? ASV has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. Going forward, its financial position may change. I suggest researching market expectations for ASV’s future growth on our free analysis platform.
Are you a potential investor? ASV’s high cash coverage and low levels of debt indicate its ability to use its borrowings efficiently in order to produce a healthy cash flow. In addition, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. In order to build your confidence in the stock, you need to also examine ASV’s track record. You should continue your analysis by taking a look at ASV’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.
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.
