How Financially Strong Is Buderim Group Limited (ASX:BUG)?

Investors are always looking for growth in small-cap stocks like Buderim Group Limited (ASX:BUG), with a market cap of AU$22m. However, an important fact which most ignore is: how financially healthy is the business? Given that BUG is not presently profitable, it’s vital to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I suggest you dig deeper yourself into BUG here.

How much cash does BUG generate through its operations?

Over the past year, BUG has maintained its debt levels at around AU$14m – this includes long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at AU$4.4m 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. For this article’s sake, I won’t be looking at this today, but you can assess some of BUG’s operating efficiency ratios such as ROA here.

Does BUG’s liquid assets cover its short-term commitments?

At the current liabilities level of AU$17m, it appears that the company has been able to meet these obligations given the level of current assets of AU$33m, with a current ratio of 1.91x. For Food companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.

ASX:BUG Historical Debt December 6th 18
ASX:BUG Historical Debt December 6th 18

Can BUG service its debt comfortably?

With debt reaching 44% of equity, BUG may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since BUG is presently unprofitable, 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:

BUG’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for BUG’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Buderim Group to get a better picture of the small-cap by looking at:

  1. Valuation: What is BUG 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 BUG is currently mispriced by the market.
  2. 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.
  3. 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.