What Investors Should Know About Funcom NV.’s (OB:FUNCOM) Financial Strength
Investors are always looking for growth in small-cap stocks like Funcom NV. (OB:FUNCOM), with a market cap of ØRE1.26B. However, an important fact which most ignore is: how financially healthy is the business? Software companies, even ones that are profitable, are inclined towards being higher risk. So, understanding the company’s financial health becomes essential. Here are few basic financial health checks you should consider before taking the plunge. However, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into FUNCOM here.
How does FUNCOM’s operating cash flow stack up against its debt?
FUNCOM’s debt levels have fallen from US$7.07M to US$3.50M over the last 12 months , which is made up of current and long term debt. With this debt payback, FUNCOM’s cash and short-term investments stands at US$8.08M for investing into the business. On top of this, FUNCOM has generated cash from operations of US$10.68M over the same time period, resulting in an operating cash to total debt ratio of 305.08%, indicating that FUNCOM’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In FUNCOM’s case, it is able to generate 3.05x cash from its debt capital.
Does FUNCOM’s liquid assets cover its short-term commitments?
At the current liabilities level of US$6.06M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.62x. Generally, for Software 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.
Does FUNCOM face the risk of succumbing to its debt-load?
With debt at 25.54% of equity, FUNCOM may be thought of as appropriately levered. This range is considered safe as FUNCOM is not taking on too much debt obligation, which may be constraining for future growth.
Next Steps:
FUNCOM’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for FUNCOM’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Funcom to get a more holistic view of the stock by looking at:
1. Valuation: What is FUNCOM 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 FUNCOM is currently mispriced by the market.
2. Historical Performance: What has FUNCOM’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.
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.
