Is Ultima United Limited (ASX:UUL) A Financially Sound Company?

While small-cap stocks, such as Ultima United Limited (ASX:UUL) with its market cap of AU$1.53M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that UUL is not presently profitable, it’s vital to evaluate the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, I know these factors are very high-level, so I suggest you dig deeper yourself into UUL here.

Does UUL generate an acceptable amount of cash through operations?

UUL’s debt levels have fallen from AU$945.00K to AU$896.62K over the last 12 months – this includes both the current and long-term debt. With this debt repayment, UUL currently has AU$1.12M remaining in cash and short-term investments 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 examine some of UUL’s operating efficiency ratios such as ROA here.

Can UUL meet its short-term obligations with the cash in hand?

With current liabilities at AU$194.00K, it seems that the business has been able to meet these obligations given the level of current assets of AU$1.13M, with a current ratio of 5.8x. Though, anything above 3x is considered high and could mean that UUL has too much idle capital in low-earning investments.

ASX:UUL Historical Debt Feb 7th 18
ASX:UUL Historical Debt Feb 7th 18

Is UUL’s debt level acceptable?

With debt at 37.54% of equity, UUL may be thought of as appropriately levered. This range is considered safe as UUL is not taking on too much debt obligation, which may be constraining for future growth. UUL’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.

Next Steps:

Although UUL’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. This is only a rough assessment of financial health, and I’m sure UUL has company-specific issues impacting its capital structure decisions. I suggest you continue to research Ultima United to get a better picture of the stock by looking at: