Investors are always looking for growth in small-cap stocks like Lassonde Industries Inc (TSX:LAS.A), with a market cap of CA$1.87B. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is essential, 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. Though, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into LAS.A here.
How does LAS.A’s operating cash flow stack up against its debt?
LAS.A has shrunken its total debt levels in the last twelve months, from CA$259.05M to CA$173.72M , which comprises of short- and long-term debt. With this debt payback, LAS.A's cash and short-term investments stands at CA$16.23M for investing into the business. Additionally, LAS.A has produced cash from operations of CA$144.90M during the same period of time, leading to an operating cash to total debt ratio of 83.41%, signalling that LAS.A’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 LAS.A’s case, it is able to generate 0.83x cash from its debt capital.
Can LAS.A meet its short-term obligations with the cash in hand?
Looking at LAS.A’s most recent CA$222.94M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of CA$369.34M, with a current ratio of 1.66x. Usually, for Food companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does LAS.A face the risk of succumbing to its debt-load?LAS.A’s level of debt is appropriate relative to its total equity, at 27.80%. This range is considered safe as LAS.A is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether LAS.A 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 LAS.A's, case, the ratio of 10.99x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as LAS.A’s high interest coverage is seen as responsible and safe practice.
LAS.A’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I'm sure LAS.A has company-specific issues impacting its capital structure decisions. I suggest you continue to research Lassonde Industries to get a more holistic view of the stock by looking at:
- Valuation: What is LAS.A 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 LAS.A is currently mispriced by the market.
- Historical Performance: What has LAS.A'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.
- 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.
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.