While small-cap stocks, such as ASV Holdings, Inc. (NASDAQ:ASV) with its market cap of US$25m, 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 ASV is not presently profitable, it’s vital to understand the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company’s balance sheet strength. Nevertheless, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into ASV here.
ASV’s Debt (And Cash Flows)
ASV has built up its total debt levels in the last twelve months, from US$27m to US$29m , which includes long-term debt. With this rise in debt, ASV’s cash and short-term investments stands at below $10K, which is concerning. Additionally, operating cash flow was negative over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can take a look at some of ASV’s operating efficiency ratios such as ROA here.
Can ASV pay its short-term liabilities?
Looking at ASV’s US$27m in current liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.02x. The current ratio is the number you get when you divide current assets by current liabilities. For Machinery companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does ASV face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 86%, ASV can be considered as an above-average leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. Though, since ASV is currently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
ASV’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around ASV’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for ASV’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research ASV Holdings to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ASV’s future growth? Take a look at our free research report of analyst consensus for ASV’s outlook.
- Historical Performance: What has ASV’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.
- 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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