How Financially Strong Is Badger Daylighting Ltd (TSE:BAD)?

Investors are always looking for growth in small-cap stocks like Badger Daylighting Ltd (TSX:BAD), with a market cap of CA$934.94M. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into BAD here.

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

Over the past year, BAD has maintained its debt levels at around CA$100.70M comprising of short- and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at CA$62.88M for investing into the business. On top of this, BAD has produced cash from operations of CA$79.08M during the same period of time, leading to an operating cash to total debt ratio of 78.53%, meaning that BAD’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 BAD’s case, it is able to generate 0.79x cash from its debt capital.

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

Looking at BAD’s most recent CA$43.81M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.76x. Though, anything about 3x may be excessive, since BAD may be leaving too much capital in low-earning investments.

Can BAD service its debt comfortably?

With debt at 32.13% of equity, BAD may be thought of as appropriately levered. BAD is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether BAD 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 BAD's, case, the ratio of 13.66x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as BAD’s high interest coverage is seen as responsible and safe practice.

Next Steps:

BAD has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for BAD's financial health. Other important fundamentals need to be considered alongside. You should continue to research Badger Daylighting to get a more holistic view of the stock by looking at:

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