Investors are always looking for growth in small-cap stocks like Taitron Components Incorporated (NASDAQ:TAIT), with a market cap of USD $8.80M. However, an important fact which most ignore is: how financially healthy is the company? There are always disruptions which destabilize an existing industry, in which most small-cap companies are the first casualties. Here are few basic financial health checks to judge whether a company fits the bill or there is an additional risk which you should consider before taking the plunge. Check out our latest analysis for Taitron Components
How does TAIT’s operating cash flow stack up against its debt?
While failure to manage cash has been one of the major reasons behind the demise of a lot of small businesses, mismanagement comes into the light during tough situations such as an economic recession. These catastrophes does not mean the company can stop servicing its debt obligations. We can test the impact of these adverse events by looking at whether cash from its current operations can pay back its current debt obligations. Last year, TAIT’s operating cash flow exceeded its debt obligations, which indicates extremely low risk of TAIT not being able to meet its debt near-team, given that it generates enough cash in a year to pay off its current debt. This is great news for both debtholders and shareholders, as the company exhibits cautious cash and debt management.
Can TAIT meet its short-term obligations with the cash in hand?
What about its commitments to other stakeholders such as payments to suppliers and employees? In times of adverse events, TAIT may need to liquidate its short-term assets to pay these immediate obligations. We test for TAIT’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that TAIT does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Can TAIT service its debt comfortably?
While ideally the debt-to equity ratio of a financially healthy company should be less than 40%, several factors such as industry life-cycle and economic conditions can result in a company raising a significant amount of debt. In the case of TAIT, the debt-to-equity ratio is 8.38%, which means debt is low and does not pose any significant threat to the company’s operations.
Are you a shareholder? TAIT has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Going forward, its financial position may be different. I suggest researching market expectations for TAIT’s future growth on our free analysis platform.
Are you a potential investor? TAIT’s high cash coverage and low levels of debt indicate its ability to use its borrowings efficiently in order to produce a healthy cash flow. Furthermore, its high liquidity means the company should continue to operate smoothly in the case of adverse events. To gain more conviction in the stock, you need to further analyse TAIT’s track record. You should continue your analysis by taking a look at TAIT’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.
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.