While small-cap stocks, such as New York & Company Inc (NYSE:NWY) with its market cap of US$175.52M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Specialty Retail industry facing headwinds from current disruption, especially ones that are currently loss-making, are more likely to be higher risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into NWY here.
Does NWY generate an acceptable amount of cash through operations?
Over the past year, NWY has reduced its debt from US$13.17M to US$12.33M , which comprises of short- and long-term debt. With this reduction in debt, NWY currently has US$88.37M remaining in cash and short-term investments , ready to deploy into the business. Additionally, NWY has generated US$48.76M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 395.59%, meaning that NWY’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for loss making businesses since metrics such as return on asset (ROA) requires a positive net income. In NWY’s case, it is able to generate 3.96x cash from its debt capital.
Can NWY pay its short-term liabilities?
With current liabilities at US$138.38M, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.43x. Generally, for Specialty Retail companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can NWY service its debt comfortably?
With a debt-to-equity ratio of 14.40%, NWY’s debt level may be seen as prudent. This range is considered safe as NWY is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with NWY, and the company has plenty of headroom and ability to raise debt should it need to in the future.
NWY’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for NWY’s financial health. Other important fundamentals need to be considered alongside. You should continue to research New York to get a more holistic view of the stock by looking at:
- 1. Valuation: What is NWY 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 NWY is currently mispriced by the market.
- 2. Historical Performance: What has NWY’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 our analysis for more clarity.
- 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.