While small-cap stocks, such as Alpha Peak Leisure Inc (TSXV:AAP) with its market cap of CA$14.42M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that AAP is not presently profitable, it’s vital to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I recommend you dig deeper yourself into AAP here.
Does AAP generate enough cash through operations?
AAP has sustained its debt level by about CA$2.08M over the last 12 months – this includes both the current and long-term debt. At this constant level of debt, AAP’s cash and short-term investments stands at CA$7.74M , 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 take a look at some of AAP’s operating efficiency ratios such as ROA here.
Does AAP’s liquid assets cover its short-term commitments?
Looking at AAP’s most recent CA$1.89M liabilities, it appears that the company has been able to meet these commitments with a current assets level of CA$7.90M, leading to a 4.17x current account ratio. Though, anything above 3x is considered high and could mean that AAP has too much idle capital in low-earning investments.
Is AAP’s debt level acceptable?
AAP’s level of debt is low relative to its total equity, at 6.31%. This range is considered safe as AAP is not taking on too much debt obligation, which may be constraining for future growth. AAP’s risk around capital structure is almost non-existent, and the company has the headroom and ability to raise debt should it need to in the future.Next Steps:
AAP’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 proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for AAP’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Alpha Peak Leisure to get a better picture of the stock by looking at:
- 1. Historical Performance: What has AAP’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.