Is Jason Industries Inc’s (NASDAQ:JASN) Balance Sheet Strong Enough To Weather A Storm?
Jason Industries Inc (NASDAQ:JASN) is a small-cap stock with a market capitalization of US$83.49M. 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. Why is it important? Given that JASN is not presently profitable, it’s crucial to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, I know these factors are very high-level, so I recommend you dig deeper yourself into JASN here.
Does JASN generate an acceptable amount of cash through operations?
Over the past year, JASN has reduced its debt from US$427.17M to US$401.93M , which is made up of current and long term debt. With this debt payback, the current cash and short-term investment levels stands at US$48.89M , ready to deploy into the business. Moreover, JASN has generated cash from operations of US$30.09M over the same time period, leading to an operating cash to total debt ratio of 7.49%, signalling that JASN’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making businesses since metrics such as return on asset (ROA) requires a positive net income. In JASN’s case, it is able to generate 0.075x cash from its debt capital.
Can JASN meet its short-term obligations with the cash in hand?
With current liabilities at US$100.89M, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.02x. For Machinery companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does JASN face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, JASN is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since JASN is currently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
JASN’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. Though, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for JASN’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Jason Industries to get a better picture of the stock by looking at:
1. Future Outlook: What are well-informed industry analysts predicting for JASN’s future growth? Take a look at our free research report of analyst consensus for JASN’s outlook.
2. Valuation: What is JASN 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 JASN is currently mispriced by the market.
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.
