What Investors Should Know About Tap Oil Limited’s (ASX:TAP) Financial Strength
Tap Oil Limited (ASX:TAP) is a small-cap stock with a market capitalization of AUD A$30.24M. 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. The significance of doing due diligence on a company’s financial strength stems from the fact that over 20,000 companies go bankrupt in every quarter in the US alone. 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. View our latest analysis for Tap Oil
Does TAP generate enough cash through operations?
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 adverse events bring devastation and yet does not absolve the company from its debt. Can TAP pay off what it owes to its debtholder by using only cash from its operational activities? TAP’s recent operating cash flow exceeded its debt obligations within the past year, which indicates extremely low risk of TAP 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 reflects proper cash and debt management by the company – great news for both debtholders and shareholders.
Can TAP meet its short-term obligations with the cash in hand?
In addition to debtholders, a company must be able to pay its bills and salaries to keep the business running. As cash flow from operation is hindered by adverse events, TAP may need to liquidate its short-term assets to meet these upcoming payments. We test for TAP’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that TAP does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Is TAP’s level of debt at an acceptable level?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. In the case of TAP, the debt-to-equity ratio is 8.72%, which means debt is low and does not pose any significant threat to the company’s operations.
Next Steps:
Are you a shareholder? TAP has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. In the future, its financial position may be different. You should always be keeping abreast of market expectations for TAP’s future growth on our free analysis platform.
Are you a potential investor? TAP’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 ensures the company will continue to operate smoothly should unfavourable circumstances arise. To gain more conviction in the stock, you need to further analyse the company’s track record. As a following step, you should take a look at TAP’s past performance analysis on our free platform to figure out TAP’s financial health position.
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.
