Buderim Group Limited (ASX:BUG): Time For A Financial Health Check

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Investors are always looking for growth in small-cap stocks like Buderim Group Limited (ASX:BUG), with a market cap of AU$17m. However, an important fact which most ignore is: how financially healthy is the business? Since BUG is loss-making right now, it’s essential to assess 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. However, this is not a comprehensive overview, so I suggest you dig deeper yourself into BUG here.

BUG’s Debt (And Cash Flows)

BUG has built up its total debt levels in the last twelve months, from AU$13m to AU$16m , which includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at AU$1.4m to keep the business going. Moving on, operating cash flow was negative over the last twelve months. 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 BUG’s operating efficiency ratios such as ROA here.

Can BUG pay its short-term liabilities?

At the current liabilities level of AU$18m, it seems that the business has been able to meet these obligations given the level of current assets of AU$35m, with a current ratio of 1.94x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Food companies, this is a suitable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Can BUG service its debt comfortably?

With a debt-to-equity ratio of 49%, BUG 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. But since BUG is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

Although BUG’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around BUG's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for BUG's financial health. Other important fundamentals need to be considered alongside. You should continue to research Buderim Group to get a better picture of the small-cap by looking at:

1. Historical Performance: What has BUG'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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.