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While small-cap stocks, such as ANY Security Printing Company Public Limited Company (BUSE:ANY) with its market cap of Ft20b, 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 vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. We'll look at some basic checks that can form a snapshot the company’s financial strength. However, these checks don't give you a full picture, so I suggest you dig deeper yourself into ANY here.
Does ANY Produce Much Cash Relative To Its Debt?
ANY's debt levels surged from Ft5.4b to Ft7.0b over the last 12 months – this includes long-term debt. With this increase in debt, the current cash and short-term investment levels stands at Ft1.0b , ready to be used for running the business. Additionally, ANY has generated cash from operations of Ft2.3b over the same time period, leading to an operating cash to total debt ratio of 32%, meaning that ANY’s operating cash is sufficient to cover its debt.
Does ANY’s liquid assets cover its short-term commitments?
At the current liabilities level of Ft10b, it appears that the company has been able to meet these obligations given the level of current assets of Ft10b, with a current ratio of 1.02x. The current ratio is calculated by dividing current assets by current liabilities. For Commercial Services companies, this ratio is within a sensible range since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is ANY’s debt level acceptable?
ANY is a relatively highly levered company with a debt-to-equity of 99%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. We can check to see whether ANY 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 ANY's, case, the ratio of 17.78x suggests that interest is comfortably covered, which means that lenders may be willing to lend out more funding as ANY’s high interest coverage is seen as responsible and safe practice.
Although ANY’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around ANY's liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven't considered other factors such as how ANY has been performing in the past. I suggest you continue to research ANY Security Printing to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ANY’s future growth? Take a look at our free research report of analyst consensus for ANY’s outlook.
- Valuation: What is ANY 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 ANY 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.