While small-cap stocks, such as Avalon Holdings Corporation (AMEX:AWX) with its market cap of US$7.95M, 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 AWX is not presently profitable, it’s essential to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into AWX here.
Does AWX generate an acceptable amount of cash through operations?
AWX has sustained its debt level by about US$12.36M over the last 12 months made up of current and long term debt. At this current level of debt, AWX’s cash and short-term investments stands at US$1.03M , ready to deploy into the business. Additionally, AWX has generated cash from operations of US$1.25M during the same period of time, resulting in an operating cash to total debt ratio of 10.10%, meaning that AWX’s debt is not appropriately covered by operating cash. 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 AWX’s case, it is able to generate 0.1x cash from its debt capital.
Can AWX meet its short-term obligations with the cash in hand?
At the current liabilities level of US$13.10M liabilities, it seems that the business has not been able to meet these commitments with a current assets level of US$12.91M, leading to a 0.98x current account ratio. which is under the appropriate industry ratio of 3x.
Is AWX’s debt level acceptable?
With a debt-to-equity ratio of 30.82%, AWX’s debt level may be seen as prudent. AWX is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is very low with AWX, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Although AWX’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. Furthermore, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure AWX has company-specific issues impacting its capital structure decisions. I recommend you continue to research Avalon Holdings to get a better picture of the stock by looking at:
- Historical Performance: What has AWX’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.