Is Alpha Peak Leisure Inc's (CVE:AAP) Balance Sheet A Threat To Its Future?

While small-cap stocks, such as Alpha Peak Leisure Inc (CVE:AAP) with its market cap of CA$6.13m, 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 AAP is loss-making right now, 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, this commentary is still very high-level, so I suggest you dig deeper yourself into AAP here.

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

Over the past year, AAP has reduced its debt from CA$2.08m to CA$1.93m – this includes both the current and long-term debt. With this reduction in debt, AAP currently has CA$5.00m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. 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 AAP’s operating efficiency ratios such as ROA here.

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

With current liabilities at CA$3.99m, it appears that the company has been able to meet these commitments with a current assets level of CA$5.15m, leading to a 1.29x current account ratio. For Hospitality companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Is AAP’s debt level acceptable?

With debt at 36.97% of equity, AAP may be thought of as appropriately levered. AAP is not taking on too much debt commitment, which may be constraining for future growth. Investors' risk associated with debt is very low with AAP, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Next Steps:

Although AAP’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. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I'm sure AAP has company-specific issues impacting its capital structure decisions. You should continue to research Alpha Peak Leisure to get a more holistic view 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.

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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.