What does Dotz Nano Limited's (ASX:DTZ) Balance Sheet Tell Us About Its Future?

Investors are always looking for growth in small-cap stocks like Dotz Nano Limited (ASX:DTZ), with a market cap of AU$15.64M. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Semiconductor industry, especially ones that are currently loss-making, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is crucial. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into DTZ here.

Does DTZ generate enough cash through operations?

Over the past year, DTZ has borrowed debt capital of around US$79.72K made up of current and long term debt. With this ramp up in debt, DTZ currently has US$2.84M remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn't be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of DTZ’s operating efficiency ratios such as ROA here.

Can DTZ pay its short-term liabilities?

With current liabilities at US$665.94K, the company has been able to meet these obligations given the level of current assets of US$3.11M, with a current ratio of 4.67x. However, a ratio greater than 3x may be considered as too high, as DTZ could be holding too much capital in a low-return investment environment.

Is DTZ’s debt level acceptable?

DTZ’s level of debt is low relative to its total equity, at 2.70%. This range is considered safe as DTZ is not taking on too much debt obligation, which may be constraining for future growth. DTZ's risk around capital structure is almost non-existent, and the company has the headroom and ability to raise debt should it need to in the future.

Next Steps:

DTZ’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for DTZ's financial health. Other important fundamentals need to be considered alongside. You should continue to research Dotz Nano to get a more holistic view of the stock by looking at:

1. Historical Performance: What has DTZ's returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
2. 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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.