While small-cap stocks, such as Landmark Infrastructure Partners LP (NASDAQ:LMRK) with its market cap of US$412.78M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into LMRK here.
How does LMRK’s operating cash flow stack up against its debt?
LMRK’s debt levels surged from US$337.31M to US$491.25M over the last 12 months , which is made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$9.19M for investing into the business. Additionally, LMRK has produced US$28.47M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 5.80%, indicating that LMRK’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In LMRK’s case, it is able to generate 0.058x cash from its debt capital.
Can LMRK pay its short-term liabilities?
At the current liabilities level of US$7.08M liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$36.88M, leading to a 5.21x current account ratio. However, anything above 3x is considered high and could mean that LMRK has too much idle capital in low-earning investments.
Is LMRK’s debt level acceptable?
Since total debt levels have outpaced equities, LMRK is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether LMRK is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In LMRK’s, case, the ratio of 2.12x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
At its current level of cash flow coverage, LMRK has room for improvement to better cushion for events which may require debt repayment. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure LMRK has company-specific issues impacting its capital structure decisions. I suggest you continue to research Landmark Infrastructure Partners to get a better picture of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for LMRK’s future growth? Take a look at our free research report of analyst consensus for LMRK’s outlook.
- 2. Valuation: What is LMRK 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 LMRK 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.