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Is FRP Holdings, Inc.’s (NASDAQ:FRPH) Balance Sheet A Threat To Its Future?

Simply Wall St

FRP Holdings, Inc. (NASDAQ:FRPH) is a small-cap stock with a market capitalization of US$500m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Understanding the company’s financial health becomes crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. We’ll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, this is just a partial view of the stock, and I’d encourage you to dig deeper yourself into FRPH here.

FRPH’s Debt (And Cash Flows)

FRPH’s debt levels have fallen from US$115m to US$89m over the last 12 months , which includes long-term debt. With this debt repayment, FRPH’s cash and short-term investments stands at US$35m , ready to be used for running the business. Moving on, operating cash flow was negative over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can assess some of FRPH’s operating efficiency ratios such as ROA here.

Can FRPH meet its short-term obligations with the cash in hand?

With current liabilities at US$4.8m, the company has been able to meet these obligations given the level of current assets of US$75m, with a current ratio of 15.62x. The current ratio is calculated by dividing current assets by current liabilities. However, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.

NasdaqGS:FRPH Historical Debt, March 8th 2019

Can FRPH service its debt comfortably?

With a debt-to-equity ratio of 23%, FRPH’s debt level may be seen as prudent. This range is considered safe as FRPH is not taking on too much debt obligation, which may be constraining for future growth. We can test if FRPH’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 FRPH, the ratio of 3.42x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving FRPH ample headroom to grow its debt facilities.

Next Steps:

FRPH’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how FRPH has been performing in the past. I suggest you continue to research FRP Holdings to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for FRPH’s future growth? Take a look at our free research report of analyst consensus for FRPH’s outlook.
  2. Historical Performance: What has FRPH’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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.