Investors are always looking for growth in small-cap stocks like Advanced Braking Technology Limited (ASX:ABV), with a market cap of AU$6.67m. However, an important fact which most ignore is: how financially healthy is the business? Given that ABV is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into ABV here.
How much cash does ABV generate through its operations?
ABV’s debt levels have fallen from AU$1.83m to AU$1.31m over the last 12 months , which is made up of current and long term debt. With this reduction in debt, the current cash and short-term investment levels stands at AU$1.49m , ready to deploy 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 assess some of ABV’s operating efficiency ratios such as ROA here.
Does ABV’s liquid assets cover its short-term commitments?
At the current liabilities level of AU$2.58m liabilities, the company has been able to meet these commitments with a current assets level of AU$4.77m, leading to a 1.85x current account ratio. Generally, for Auto Components companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can ABV service its debt comfortably?With a debt-to-equity ratio of 38.35%, ABV’s debt level may be seen as prudent. This range is considered safe as ABV is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. ABV’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
ABV’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. I admit this is a fairly basic analysis for ABV’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Advanced Braking Technology to get a more holistic view of the stock by looking at:
- Historical Performance: What has ABV’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.