Investors are always looking for growth in small-cap stocks like Wide Open Agriculture Limited (ASX:WOA), with a market cap of AU$14.12m. However, an important fact which most ignore is: how financially healthy is the business? Since WOA is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into WOA here.
How much cash does WOA generate through its operations?
WOA's debt levels surged from AU$109.58k to AU$301.41k over the last 12 months , which is mainly comprised of near term debt. With this rise in debt, WOA currently has AU$335.88k remaining in cash and short-term investments , 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. For this article’s sake, I won’t be looking at this today, but you can take a look at some of WOA’s operating efficiency ratios such as ROA here.
Can WOA pay its short-term liabilities?
At the current liabilities level of AU$475.36k liabilities, it appears that the company has been able to meet these commitments with a current assets level of AU$497.34k, leading to a 1.05x current account ratio. For Food companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too capital in low return investments.
Does WOA face the risk of succumbing to its debt-load?WOA’s level of debt is appropriate relative to its total equity, at 36.63%. This range is considered safe as WOA is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. WOA'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.
Although WOA’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. Keep in mind I haven't considered other factors such as how WOA has been performing in the past. You should continue to research Wide Open Agriculture to get a more holistic view of the stock by looking at:
- Historical Performance: What has WOA'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.
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Simply Wall St has no position in any of the companies mentioned. This article 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. 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.
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