While small-cap stocks, such as Buhler Industries Inc (TSX:BUI) with its market cap of CA$102.75M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since BUI is loss-making right now, it’s crucial to assess 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. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into BUI here.
Does BUI generate an acceptable amount of cash through operations?
BUI’s debt levels have fallen from CA$20.45M to CA$12.55M over the last 12 months made up of predominantly near term debt. With this debt repayment, BUI currently has CA$0 remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 examine some of BUI’s operating efficiency ratios such as ROA here.
Does BUI’s liquid assets cover its short-term commitments?
Looking at BUI’s most recent CA$133.91M liabilities, it appears that the company has been able to meet these commitments with a current assets level of CA$254.89M, leading to a 1.9x current account ratio. For Machinery companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does BUI face the risk of succumbing to its debt-load?With a debt-to-equity ratio of 24.71%, BUI’s debt level may be seen as prudent. BUI is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. BUI’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.
BUI’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure BUI has company-specific issues impacting its capital structure decisions. I recommend you continue to research Buhler Industries to get a better picture of the stock by looking at:
- 1. Historical Performance: What has BUI’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.
- 2. 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.