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Investors are always looking for growth in small-cap stocks like Integrated Media Technology Limited (ASX:ITL), with a market cap of AU$44.94M. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into ITL here.
Does ITL generate enough cash through operations?
Over the past year, ITL has reduced its debt from AU$3.61M to AU$1.87M , which is mainly comprised of near term debt. With this debt repayment, ITL currently has AU$2.86M remaining in cash and short-term investments for investing into the business. On top of this, ITL has produced AU$4.86M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 260.44%, signalling that ITL’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 ITL’s case, it is able to generate 2.6x cash from its debt capital.
Does ITL’s liquid assets cover its short-term commitments?
At the current liabilities level of AU$3.72M liabilities, the company has been able to meet these commitments with a current assets level of AU$9.20M, leading to a 2.47x current account ratio. Generally, for Media 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 ITL face the risk of succumbing to its debt-load?
ITL’s level of debt is appropriate relative to its total equity, at 12.14%. ITL is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
ITL’s high cash coverage and low 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. I admit this is a fairly basic analysis for ITL’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Integrated Media Technology to get a more holistic view of the stock by looking at:
Valuation: What is ITL 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 ITL is currently mispriced by the market.
Historical Performance: What has ITL’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.