While small-cap stocks, such as Altyn Plc (LSE:ALTN) with its market cap of UK£30.81M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that ALTN is not presently profitable, it’s vital to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into ALTN here.
Does ALTN generate an acceptable amount of cash through operations?
ALTN has shrunken its total debt levels in the last twelve months, from US$16.42M to US$14.16M – this includes both the current and long-term debt. With this debt repayment, ALTN’s cash and short-term investments stands at US$704.00K , ready to deploy into the business. Moreover, ALTN has produced US$5.11M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 36.07%, meaning that ALTN’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In ALTN’s case, it is able to generate 0.36x cash from its debt capital.
Can ALTN meet its short-term obligations with the cash in hand?
At the current liabilities level of US$9.06M liabilities, it appears that the company has not been able to meet these commitments with a current assets level of US$4.95M, leading to a 0.55x current account ratio. which is under the appropriate industry ratio of 3x.
Does ALTN face the risk of succumbing to its debt-load?
ALTN is a relatively highly levered company with a debt-to-equity of 42.58%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since ALTN is currently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although ALTN’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. However, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure ALTN has company-specific issues impacting its capital structure decisions. I recommend you continue to research Altyn to get a more holistic view of the stock by looking at:
- Valuation: What is ALTN 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 ALTN is currently mispriced by the market.
- Historical Performance: What has ALTN’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 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.