Real Estate Investar Group Limited (ASX:REV) is a small-cap stock with a market capitalization of AU$2.68M. 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? Internet companies, especially ones that are currently loss-making, are more likely to be higher risk. So, understanding the company’s financial health becomes crucial. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into REV here.
Does REV generate an acceptable amount of cash through operations?
Over the past year, REV has maintained its debt levels at around AU$234.96K made up of predominantly near term debt. At this stable level of debt, the current cash and short-term investment levels stands at AU$599.82K 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. For this article’s sake, I won’t be looking at this today, but you can examine some of REV’s operating efficiency ratios such as ROA here.
Can REV pay its short-term liabilities?
With current liabilities at AU$2.63M, it appears that the company is not able to meet these obligations given the level of current assets of AU$2.38M, with a current ratio of 0.91x below the prudent level of 3x.
Does REV face the risk of succumbing to its debt-load?With a debt-to-equity ratio of 17.57%, REV’s debt level may be seen as prudent. REV is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is very low with REV, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Although REV’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. In addition to this, 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 REV has been performing in the past. You should continue to research Real Estate Investar Group to get a more holistic view of the stock by looking at:
- Historical Performance: What has REV’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.