What You Must Know About accesso Technology Group plc’s (AIM:ACSO) Financial Strength
accesso Technology Group plc (AIM:ACSO) is a small-cap stock with a market capitalization of GBP £553.16M. 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? Electronic Equipment, Instruments and Components companies, even ones that are profitable, tend to be high risk. Evaluating financial health as part of your investment thesis is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into ACSO here.
How does ACSO’s operating cash flow stack up against its debt?
ACSO’s debt levels have fallen from $15M to $9M over the last 12 months , which is made up of current and long term debt. With this debt repayment, ACSO’s cash and short-term investments stands at $6M for investing into the business. On top of this, ACSO has produced $18M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 1.9x, meaning that ACSO’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In ACSO’s case, it is able to generate 1.9x cash from its debt capital.
Can ACSO pay its short-term liabilities?
Looking at ACSO’s most recent $11M liabilities, it seems that the business has been able to meet these commitments with a current assets level of $17M, leading to a 1.53x current account ratio. Generally, for electronic equipment, instruments and 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.
Does ACSO face the risk of succumbing to its debt-load?
With debt reaching 45.18% of equity, ACSO may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In ACSO’s case, the ratio of 24.25x suggests that interest is excessively covered, which means that debtors may be willing to loan the company more money, giving ACSO ample headroom to grow its debt facilities.
Next Steps:
Are you a shareholder? Although ACSO’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. Since there is also no concerns around ACSO’s liquidity needs, this may be its optimal capital structure for the time being. In the future, its financial position may change. You should always be keeping on top of market expectations for ACSO’s future growth on our free analysis platform.
Are you a potential investor? Investors shouldn’t be put off by ACSO’s high debt levels based on this simple analysis. High level of cash generated from operating activities indicates its debt funding is being effectively used. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. In order to build your conviction in the stock, you need to further examine the company’s track record. You should continue your analysis by taking a look at ACSO’s past performance analysis on our free platform to conclude on ACSO’s financial health.
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.
