Phileo Australia Limited (ASX:PHI) is a small-cap stock with a market capitalization of AU$367.37m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Assessing first and foremost the financial health is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. However, this commentary is still very high-level, so I recommend you dig deeper yourself into PHI here.
How does PHI’s operating cash flow stack up against its debt?
Over the past year, PHI has maintained its debt levels at around AU$47.85m comprising of short- and long-term debt. At this constant level of debt, PHI’s cash and short-term investments stands at AU$49.80m , ready to deploy into the business. On top of this, PHI has produced AU$33.13m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 69.23%, meaning that PHI’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In PHI’s case, it is able to generate 0.69x cash from its debt capital.
Does PHI’s liquid assets cover its short-term commitments?
At the current liabilities level of AU$61.66m liabilities, it appears that the company has not been able to meet these commitments with a current assets level of AU$55.32m, leading to a 0.9x current account ratio. which is under the appropriate industry ratio of 3x.
Does PHI face the risk of succumbing to its debt-load?With a debt-to-equity ratio of 40.87%, PHI can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.
PHI’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. However, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure PHI has company-specific issues impacting its capital structure decisions. You should continue to research Phileo Australia to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PHI’s future growth? Take a look at our free research report of analyst consensus for PHI’s outlook.
- Valuation: What is PHI 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 PHI is currently mispriced by the market.
- 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 pass 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.