Firan Technology Group Corporation (TSE:FTG): Time For A Financial Health Check
While small-cap stocks, such as Firan Technology Group Corporation (TSE:FTG) with its market cap of CA$47m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Electronic companies, even ones that are profitable, are more likely to be higher risk. Assessing first and foremost the financial health is vital. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into FTG here.
Does FTG produce enough cash relative to debt?
FTG has shrunken its total debt levels in the last twelve months, from CA$12m to CA$10m – this includes long-term debt. With this reduction in debt, FTG’s cash and short-term investments stands at CA$2.5m for investing into the business. On top of this, FTG has produced cash from operations of CA$4.9m during the same period of time, resulting in an operating cash to total debt ratio of 47%, meaning that FTG’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In FTG’s case, it is able to generate 0.47x cash from its debt capital.
Does FTG’s liquid assets cover its short-term commitments?
At the current liabilities level of CA$20m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.41x. Generally, for Electronic companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does FTG face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 25%, FTG’s debt level may be seen as prudent. FTG is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether FTG is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In FTG’s, case, the ratio of 10.11x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving FTG ample headroom to grow its debt facilities.
Next Steps:
FTG’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how FTG has been performing in the past. You should continue to research Firan Technology Group to get a better picture of the stock by looking at:
Valuation: What is FTG 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 FTG is currently mispriced by the market.
Historical Performance: What has FTG’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.
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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
