While small-cap stocks, such as Blonder Tongue Laboratories Inc (AMEX:BDR) with its market cap of USD $3.37M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. There are always disruptions which destabilize an existing industry, in which most small-cap companies are the first casualties. These factors make a basic understanding of a company’s financial position of utmost importance for a potential investor. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. View our latest analysis for Blonder Tongue Laboratories
Does BDR generate enough cash through operations?
While failure to manage cash has been one of the major reasons behind the demise of a lot of small businesses, mismanagement comes into the light during tough situations such as an economic recession. Furthermore, failure to service debt can hurt its reputation, making funding expensive in the future. Can BDR pay off what it owes to its debtholder by using only cash from its operational activities? In the case of BDR, operating cash flow turned out to be 0.09x its debt level over the past twelve months. This means what BDR can generate on an annual basis only covers less than a tenth of what it actually owes its debtors in the near term, which raises a red flag.
Can BDR pay its short-term liabilities?
What about its other commitments such as payments to suppliers and salaries to its employees? In times of adverse events, BDR may need to liquidate its short-term assets to pay these immediate obligations. We test for BDR’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that BDR does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Does BDR face the risk of succumbing to its debt-load?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. BDR’s debt-to-equity ratio stands at 91.14%, which means that it is a highly leveraged company. This is not a problem if the company has consistently grown its profits. But during a business downturn, as liquidity may dry up, making it hard to operate.
Are you a shareholder? BDR’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. Given that its financial position may change. You should always be keeping abreast of market expectations for BDR’s future growth on our free analysis platform.
Are you a potential investor? With a high level of debt on its balance sheet, BDR could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for BDR to increase its 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 BDR’s past performance analysis on our free platform to conclude on BDR’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.