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While small-cap stocks, such as Superior Industries International, Inc. (NYSE:SUP) with its market cap of US$81m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that SUP is not presently profitable, it’s essential to evaluate the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. However, potential investors would need to take a closer look, and I suggest you dig deeper yourself into SUP here.
SUP’s Debt (And Cash Flows)
SUP's debt level has been constant at around US$679m over the previous year which accounts for long term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$54m , ready to be used for running the business. Moreover, SUP has generated cash from operations of US$170m in the last twelve months, leading to an operating cash to total debt ratio of 25%, meaning that SUP’s operating cash is sufficient to cover its debt.
Can SUP pay its short-term liabilities?
With current liabilities at US$188m, it appears that the company has been able to meet these commitments with a current assets level of US$382m, leading to a 2.04x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Auto Components 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.
Can SUP service its debt comfortably?
Since total debt levels exceed equity, SUP is a highly leveraged company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. However, since SUP is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although SUP’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for SUP's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Superior Industries International to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SUP’s future growth? Take a look at our free research report of analyst consensus for SUP’s outlook.
- Valuation: What is SUP 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 SUP is currently mispriced by the market.
- 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.