Blonder Tongue Laboratories Inc (AMEX:BDR) is a small-cap stock with a market capitalization of US$6.81M. 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? Companies operating in the Communications industry, in particular ones that run negative earnings, are more likely to be higher risk. Assessing first and foremost the financial health is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into BDR here.
Does BDR generate enough cash through operations?
BDR’s debt levels surged from US$6.06M to US$6.45M over the last 12 months , which is made up of current and long term debt. With this increase in debt, BDR’s cash and short-term investments stands at US$168.00K , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can examine some of BDR’s operating efficiency ratios such as ROA here.
Does BDR’s liquid assets cover its short-term commitments?
At the current liabilities level of US$3.94M liabilities, the company has been able to meet these obligations given the level of current assets of US$8.95M, with a current ratio of 2.27x. Generally, for Communications companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is BDR’s debt level acceptable?
With debt reaching 87.06% of equity, BDR may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since BDR is presently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
At its current level of cash flow coverage, BDR has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how BDR has been performing in the past. You should continue to research Blonder Tongue Laboratories to get a more holistic view of the stock by looking at:
- 1. Historical Performance: What has BDR’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.
- 2. 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.