Is Cycliq Group Limited's (ASX:CYQ) Balance Sheet A Threat To Its Future?

While small-cap stocks, such as Cycliq Group Limited (ASX:CYQ) with its market cap of AU$5m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since CYQ is loss-making right now, 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. However, I know these factors are very high-level, so I recommend you dig deeper yourself into CYQ here.

Does CYQ produce enough cash relative to debt?

CYQ has built up its total debt levels in the last twelve months, from AU$18k to AU$536k , which is mainly comprised of near term debt. With this increase in debt, CYQ's cash and short-term investments stands at AU$315k for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. 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 CYQ’s operating efficiency ratios such as ROA here.

Can CYQ pay its short-term liabilities?

At the current liabilities level of AU$1m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.62x. Usually, for Leisure companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Can CYQ service its debt comfortably?

With debt at 32% of equity, CYQ may be thought of as appropriately levered. This range is considered safe as CYQ is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for CYQ, and the company also has the ability and headroom to increase debt if needed going forward.

Next Steps:

Although CYQ’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for CYQ's financial health. Other important fundamentals need to be considered alongside. You should continue to research Cycliq Group to get a better picture of the stock by looking at:

1. Historical Performance: What has CYQ'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.

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 editorial-team@simplywallst.com.

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.