While small-cap stocks, such as Fuling Global Inc (NASDAQ:FORK) with its market cap of US$69.22M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Consumer Durables businesses operating in the environment facing headwinds from current disruption, even ones that are profitable, are more likely to be higher risk. So, understanding the company’s financial health becomes vital. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I suggest you dig deeper yourself into FORK here.
Does FORK generate an acceptable amount of cash through operations?
FORK has built up its total debt levels in the last twelve months, from US$18.29M to US$24.79M , which is made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$5.55M for investing into the business. Additionally, FORK has generated US$5.21M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 21.00%, signalling that FORK’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 FORK’s case, it is able to generate 0.21x cash from its debt capital.
Does FORK’s liquid assets cover its short-term commitments?
Looking at FORK’s most recent US$42.28M liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$47.83M, leading to a 1.13x current account ratio. Generally, for Consumer Durables companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can FORK service its debt comfortably?
With a debt-to-equity ratio of 58.80%, FORK can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether FORK 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 FORK’s, case, the ratio of 7.41x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as FORK’s high interest coverage is seen as responsible and safe practice.
FORK’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure FORK has company-specific issues impacting its capital structure decisions. You should continue to research Fuling Global to get a better picture of the stock by looking at:
- 1. Historical Performance: What has FORK’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.