United Overseas Australia Limited (ASX:UOS) is a small-cap stock with a market capitalization of A$881.79M. 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 essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into UOS here.
Does UOS generate enough cash through operations?
UOS’s debt levels have fallen from A$189.8M to A$159.7M over the last 12 months – this includes both the current and long-term debt. With this debt payback, UOS’s cash and short-term investments stands at A$417.7M for investing into the business. On top of this, UOS has produced A$97.7M in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 0.61x, indicating that UOS’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 UOS’s case, it is able to generate 0.61x cash from its debt capital.
Can UOS pay its short-term liabilities?
With current liabilities at A$407.8M liabilities, it seems that the business has been able to meet these commitments with a current assets level of A$1,011.3M, leading to a 2.48x current account ratio. For real estate companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can UOS service its debt comfortably?With debt at 8.90% of equity, UOS may be thought of as having low leverage. This range is considered safe as UOS is not taking on too much debt obligation, which may be constraining for future growth.
Are you a shareholder? UOS’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Given that UOS’s financial situation may change. I suggest keeping abreast of market expectations for UOS’s future growth on our free analysis platform.
Are you a potential investor? United Overseas Australia currently has financial flexibility to ramp up growth in the future. Moreover, its high liquidity means the company should continue to operate smoothly in the case of adverse events. To gain more conviction in the stock, you need to also analyse UOS’s track record. You should continue your analysis by taking a look at UOS’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.