Investors are always looking for growth in small-cap stocks like ASV Holdings Inc (NASDAQ:ASV), with a market cap of US$75.38M. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, I know these factors are very high-level, so I recommend you dig deeper yourself into ASV here.
Does ASV generate an acceptable amount of cash through operations?
ASV’s debt levels have fallen from US$44.87M to US$27.18M over the last 12 months , which comprises of short- and long-term debt. With this debt repayment, ASV currently has below $10K remaining in cash and short-term investment, which is concerning. Though ASV has generated cash from operations of US$7.52M over the same time period, resulting in an operating cash to total debt ratio of 27.68%, meaning that debt is appropriately covered by operating cash. 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 0.28x cash from its debt capital.
Can ASV pay its short-term liabilities?
Looking at ASV’s most recent US$23.41M liabilities, the company has been able to meet these commitments with a current assets level of US$46.53M, leading to a 1.99x current account ratio. Usually, for Machinery companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can ASV service its debt comfortably?
ASV is a relatively highly levered company with a debt-to-equity of 41.30%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In ASV’s case, the ratio of 1.62x 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.
Although ASV’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how ASV has been performing in the past. I suggest you continue to research ASV Holdings to get a more holistic view of the small-cap by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for ASV’s future growth? Take a look at our free research report of analyst consensus for ASV’s outlook.
- 2. Valuation: What is ASV 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 ASV is currently mispriced by the market.
- 3. 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 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.