Investors are always looking for growth in small-cap stocks like Navios Maritime Acquisition Corporation (NYSE:NNA), with a market cap of US$127.78M. However, an important fact which most ignore is: how financially healthy is the business? Oil and Gas companies, in particular ones that run negative earnings, are inclined towards being higher risk. So, understanding the company’s financial health becomes vital. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into NNA here.
How does NNA’s operating cash flow stack up against its debt?
NNA has sustained its debt level by about US$1.07B over the last 12 months – this includes both the current and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$81.15M for investing into the business. On top of this, NNA has generated US$45.94M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 4.31%, indicating that NNA’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for loss making companies since metrics such as return on asset (ROA) requires positive earnings. In NNA’s case, it is able to generate 0.043x cash from its debt capital.
Does NNA’s liquid assets cover its short-term commitments?
At the current liabilities level of US$38.21M liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.13x. However, anything about 3x may be excessive, since NNA may be leaving too much capital in low-earning investments.
Does NNA face the risk of succumbing to its debt-load?
NNA is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since NNA is presently unprofitable, 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.
NNA’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. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for NNA’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Navios Maritime Acquisition to get a more holistic view of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for NNA’s future growth? Take a look at our free research report of analyst consensus for NNA’s outlook.
- 2. Valuation: What is NNA 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 NNA 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.