Investors are always looking for growth in small-cap stocks like YPB Group Limited (ASX:YPB), with a market cap of AU$11m. However, an important fact which most ignore is: how financially healthy is the business? Since YPB is loss-making right now, it’s crucial to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into YPB here.
How much cash does YPB generate through its operations?
Over the past year, YPB has reduced its debt from AU$4.6m to AU$875k made up of predominantly near term debt. With this reduction in debt, YPB’s cash and short-term investments stands at AU$369k , 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 examine some of YPB’s operating efficiency ratios such as ROA here.
Can YPB meet its short-term obligations with the cash in hand?
At the current liabilities level of AU$3.5m, the company may not have an easy time meeting these commitments with a current assets level of AU$1.2m, leading to a current ratio of 0.34x.
Does YPB face the risk of succumbing to its debt-load?
With debt at 15% of equity, YPB may be thought of as appropriately levered. YPB is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. YPB’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.
YPB has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. But, as shareholders, you should try and determine whether this level of debt is justified for YPB, especially if meeting short-term obligations could also bring about issues. Keep in mind I haven’t considered other factors such as how YPB has been performing in the past. I suggest you continue to research YPB Group to get a better picture of the stock by looking at:
- Historical Performance: What has YPB’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.
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.