While small-cap stocks, such as Buhler Industries Inc (TSX:BUI) with its market cap of CA$115.00M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I recommend 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$55.5M to CA$20.5M over the last 12 months , which is mainly comprised of near term debt. With this debt payback, BUI currently has CA$0.0M remaining in cash and short-term investments , ready to deploy into the business. Moreover, BUI has generated CA$28.1M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 1.37x, meaning that BUI’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 BUI’s case, it is able to generate 1.37x cash from its debt capital.
Can BUI pay its short-term liabilities?
At the current liabilities level of CA$93.1M liabilities, the company has been able to meet these commitments with a current assets level of CA$216.1M, leading to a 2.32x 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 14.12%, BUI’s debt level may be seen as prudent. This range is considered safe as BUI is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
Are you a shareholder? BUI’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. Going forward, BUI’s financial situation may change. I recommend keeping on top of market expectations for BUI’s future growth on our free analysis platform.
Are you a potential investor? BUI’s relatively safe debt levels is even more impressive due to its ability to generate high cash flow, which illustrates operating efficiency. Moreover, its high liquidity means the company should continue to operate smoothly in the case of adverse events. To gain more conviction in the stock, you need to further analyse BUI’s track record. I encourage you to continue your research by taking a look at BUI’s past performance analysis on our free platform to figure out BUI’s financial health position.