Flexible Solutions International Inc (FSI): Time For A Financial Health Check
While small-cap stocks, such as Flexible Solutions International Inc (AMEX:FSI) with its market cap of USD $20.86M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes essential, as mismanagement of capital can lead to 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. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into FSI here.
How does FSI’s operating cash flow stack up against its debt?
FSI has shrunken its total debt levels in the last twelve months, from $1M to $1M , which is made up of current and long term debt. With this debt repayment, FSI currently has $2M remaining in cash and short-term investments , ready to deploy into the business. On top of this, FSI has generated cash from operations of $2M during the same period of time, resulting in an operating cash to total debt ratio of 2.21x, indicating that FSI’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 FSI’s case, it is able to generate 2.21x cash from its debt capital.
Can FSI pay its short-term liabilities?
At the current liabilities level of $2M liabilities, it appears that the company has been able to meet these commitments with a current assets level of $9M, leading to a 4.05x current account ratio. Though, a ratio greater than 3x may be considered as too high, as FSI could be holding too much capital in a low-return investment environment.
Can FSI service its debt comfortably?
FSI’s level of debt is low relative to its total equity, at 3.99%. This range is considered safe as FSI is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if FSI’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 FSI, the ratio of 58.15x suggests that interest is excessively covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
Are you a shareholder? FSI’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Given that its financial position may be different. You should always be keeping abreast of market expectations for FSI’s future growth on our free analysis platform.
Are you a potential investor? FSI’s low-debt position gives it headroom for future growth funding in the future. Moreover, its high liquidity means the company should continue to operate smoothly in the case of adverse events. To gain more confidence in the stock, you need to also analyse the company’s track record. As a following step, you should take a look at FSI’s past performance analysis on our free platform to conclude on FSI’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.
