While small-cap stocks, such as Scorpio Bulkers Inc (NYSE:SALT) with its market cap of US$588.78M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that SALT is not presently profitable, it’s vital to evaluate 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. Though, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into SALT here.
Does SALT generate an acceptable amount of cash through operations?
SALT’s debt levels surged from US$579.47M to US$715.58M over the last 12 months , which is made up of current and long term debt. With this growth in debt, SALT’s cash and short-term investments stands at US$68.54M for investing into the business. Additionally, SALT has produced US$19.58M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 2.74%, signalling that SALT’s debt is not appropriately covered by operating cash. 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 SALT’s case, it is able to generate 0.027x cash from its debt capital.
Does SALT’s liquid assets cover its short-term commitments?
Looking at SALT’s most recent US$58.59M liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$82.56M, leading to a 1.41x current account ratio. Usually, for Shipping companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can SALT service its debt comfortably?
With a debt-to-equity ratio of 77.84%, SALT can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since SALT is currently loss-making, sustainability of its current state of operations becomes a concern. 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 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 an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure SALT has company-specific issues impacting its capital structure decisions. I suggest you 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 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.