PS&C Limited (ASX:PSZ) is a small-cap stock with a market capitalization of AU$33m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Given that PSZ is not presently profitable, it’s essential to understand 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. Nevertheless, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into PSZ here.
Does PSZ produce enough cash relative to debt?
PSZ has shrunken its total debt levels in the last twelve months, from AU$15m to AU$13m . With this debt payback, PSZ’s cash and short-term investments stands at AU$4.7m , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of PSZ’s operating efficiency ratios such as ROA here.
Can PSZ pay its short-term liabilities?
Looking at PSZ’s AU$37m in current liabilities, the company may not have an easy time meeting these commitments with a current assets level of AU$22m, leading to a current ratio of 0.6x.
Is PSZ’s debt level acceptable?
With a debt-to-equity ratio of 16%, PSZ’s debt level may be seen as prudent. This range is considered safe as PSZ is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with PSZ, and the company has plenty of headroom and ability to raise debt should it need to in the future.
PSZ has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. But it is still important for shareholders to understand why the company isn’t increasing its cheaper cost of capital to fund future growth, especially if meeting short-term obligations could also bring about issues. Keep in mind I haven’t considered other factors such as how PSZ has been performing in the past. I suggest you continue to research PS&C to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PSZ’s future growth? Take a look at our free research report of analyst consensus for PSZ’s outlook.
- Valuation: What is PSZ 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 PSZ 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 past 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. For errors that warrant correction please contact the editor at email@example.com.