Pangaea Logistics Solutions Ltd (NASDAQ:PANL): Time For A Financial Health Check
Investors are always looking for growth in small-cap stocks like Pangaea Logistics Solutions Ltd (NASDAQ:PANL), with a market cap of US$140.56m. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is crucial, 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, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into PANL here.
Does PANL produce enough cash relative to debt?
PANL’s debt level has been constant at around US$167.72m over the previous year – this includes both the current and long-term debt. At this stable level of debt, PANL’s cash and short-term investments stands at US$48.92m , ready to deploy into the business. Moreover, PANL has produced cash from operations of US$41.68m during the same period of time, resulting in an operating cash to total debt ratio of 24.85%, signalling that PANL’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In PANL’s case, it is able to generate 0.25x cash from its debt capital.
Can PANL pay its short-term liabilities?
Looking at PANL’s most recent US$70.64m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.41x. Usually, for Shipping companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does PANL face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 75.78%, PANL can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether PANL is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In PANL’s, case, the ratio of 3.98x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving PANL ample headroom to grow its debt facilities.
Next Steps:
PANL’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure PANL has company-specific issues impacting its capital structure decisions. I suggest you continue to research Pangaea Logistics Solutions to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for PANL’s future growth? Take a look at our free research report of analyst consensus for PANL’s outlook.
Valuation: What is PANL 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 PANL 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.
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.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
