Is Noni B Limited's (ASX:NBL) Balance Sheet A Threat To Its Future?

While small-cap stocks, such as Noni B Limited (ASX:NBL) with its market cap of AU$225.01M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Specialty Retail industry facing headwinds from current disruption, even ones that are profitable, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is essential. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I recommend you dig deeper yourself into NBL here.

How does NBL’s operating cash flow stack up against its debt?

NBL's debt levels surged from AU$33.00K to AU$22.41M over the last 12 months , which is made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at AU$28.17M , ready to deploy into the business. Additionally, NBL has generated AU$33.41M in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 149.04%, meaning that NBL’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In NBL’s case, it is able to generate 1.49x cash from its debt capital.

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

With current liabilities at AU$70.69M, it seems that the business is not able to meet these obligations given the level of current assets of AU$61.72M, with a current ratio of 0.87x below the prudent level of 3x.

Can NBL service its debt comfortably?

With a debt-to-equity ratio of 29.25%, NBL's debt level may be seen as prudent. NBL is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether NBL is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In NBL's, case, the ratio of 15.8x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.

Next Steps:

NBL has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. But, its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven't considered other factors such as how NBL has been performing in the past. I suggest you continue to research Noni B to get a more holistic view of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for NBL’s future growth? Take a look at our free research report of analyst consensus for NBL’s outlook.
2. Valuation: What is NBL 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 NBL is currently mispriced by the market.
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.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.