Investors are always looking for growth in small-cap stocks like Scorpio Bulkers Inc (NYSE:SALT), with a market cap of US$480m. However, an important fact which most ignore is: how financially healthy is the business? Since SALT is loss-making right now, it’s vital to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into SALT here.
How does SALT’s operating cash flow stack up against its debt?
Over the past year, SALT has ramped up its debt from US$606m to US$704m , which comprises of short- and long-term debt. With this growth in debt, SALT currently has US$55m remaining in cash and short-term investments , ready to deploy into the business. Additionally, SALT has produced US$51m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 7.2%, meaning that SALT’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires positive earnings. In SALT’s case, it is able to generate 0.072x cash from its debt capital.
Can SALT pay its short-term liabilities?
Looking at SALT’s most recent US$76m liabilities, it seems that the business may not have an easy time meeting these commitments with a current assets level of US$69m, leading to a current ratio of 0.91x.
Is SALT’s debt level acceptable?
With a debt-to-equity ratio of 78%, SALT 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. But since SALT is currently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
SALT’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. Furthermore, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for SALT’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Scorpio Bulkers to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SALT’s future growth? Take a look at our free research report of analyst consensus for SALT’s outlook.
- Valuation: What is SALT 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 SALT 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 firstname.lastname@example.org.