Fortress Transportation and Infrastructure Investors LLC (NYSE:FTAI) is a small-cap stock with a market capitalization of US$1.4b. 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? So, understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into FTAI here.
How much cash does FTAI generate through its operations?
FTAI’s debt levels surged from US$495m to US$863m over the last 12 months – this includes both the current and long-term debt. With this rise in debt, FTAI currently has US$40m remaining in cash and short-term investments , ready to deploy into the business. Additionally, FTAI has generated US$94m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 11%, signalling that FTAI’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In FTAI’s case, it is able to generate 0.11x cash from its debt capital.
Can FTAI meet its short-term obligations with the cash in hand?
With current liabilities at US$245m, it seems that the business may not be able to easily meet these obligations given the level of current assets of US$203m, with a current ratio of 0.83x.
Is FTAI’s debt level acceptable?
FTAI is a relatively highly levered company with a debt-to-equity of 79%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if FTAI’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For FTAI, the ratio of 0.25x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as FTAI’s low interest coverage already puts the company at higher risk of default.
FTAI’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. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure FTAI has company-specific issues impacting its capital structure decisions. I suggest you continue to research Fortress Transportation and Infrastructure Investors to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FTAI’s future growth? Take a look at our free research report of analyst consensus for FTAI’s outlook.
- Historical Performance: What has FTAI’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 past 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.
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