Is Photo-Me International plc (LON:PHTM) A Financially Sound Company?
While small-cap stocks, such as Photo-Me International plc (LON:PHTM) with its market cap of UK£466.1m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into PHTM here.
How much cash does PHTM generate through its operations?
PHTM has built up its total debt levels in the last twelve months, from UK£10.7m to UK£33.7m , which is made up of current and long term debt. With this growth in debt, PHTM currently has UK£58.7m remaining in cash and short-term investments , ready to deploy into the business. Additionally, PHTM has produced cash from operations of UK£52.3m over the same time period, leading to an operating cash to total debt ratio of 155%, signalling that PHTM’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 PHTM’s case, it is able to generate 1.55x cash from its debt capital.
Can PHTM meet its short-term obligations with the cash in hand?
At the current liabilities level of UK£58.1m 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 1.83x. Generally, for Leisure 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.
Can PHTM service its debt comfortably?
With debt at 23.3% of equity, PHTM may be thought of as appropriately levered. This range is considered safe as PHTM is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
Next Steps:
PHTM has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure PHTM has company-specific issues impacting its capital structure decisions. I recommend you continue to research Photo-Me International to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for PHTM’s future growth? Take a look at our free research report of analyst consensus for PHTM’s outlook.
Valuation: What is PHTM 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 PHTM 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.
