While small-cap stocks, such as CoAssets Limited (ASX:CA8) with its market cap of AU$51.17M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Internet companies, especially ones that are currently loss-making, tend to be high risk. So, understanding the company’s financial health becomes vital. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into CA8 here.
Does CA8 generate enough cash through operations?
CA8 has built up its total debt levels in the last twelve months, from S$793.38K to S$4.70M made up of predominantly near term debt. With this increase in debt, CA8 currently has S$2.10M remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of CA8’s operating efficiency ratios such as ROA here.
Does CA8’s liquid assets cover its short-term commitments?
Looking at CA8’s most recent S$5.79M liabilities, the company has been able to meet these commitments with a current assets level of S$8.64M, leading to a 1.49x current account ratio. Generally, for Internet companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does CA8 face the risk of succumbing to its debt-load?CA8 is a relatively highly levered company with a debt-to-equity of 96.75%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since CA8 is presently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
CA8’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 exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for CA8’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research CoAssets to get a better picture of the stock by looking at:
- Historical Performance: What has CA8’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.