BioNeutra Global Corporation (CVE:BGA) is a small-cap stock with a market capitalization of CA$27m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Evaluating financial health as part of your investment thesis 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, this commentary is still very high-level, so I suggest you dig deeper yourself into BGA here.
How much cash does BGA generate through its operations?
BGA’s debt level has been constant at around CA$9.2m over the previous year which accounts for long term debt. At this current level of debt, BGA currently has CA$3.8m remaining in cash and short-term investments , ready to deploy into the business. Additionally, BGA has produced cash from operations of CA$6.1m in the last twelve months, leading to an operating cash to total debt ratio of 67%, indicating that BGA’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In BGA’s case, it is able to generate 0.67x cash from its debt capital.
Can BGA pay its short-term liabilities?
Looking at BGA’s CA$14m in current liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.62x. For Personal Products companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Can BGA service its debt comfortably?
With debt reaching 59% of equity, BGA may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether BGA 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 BGA’s, case, the ratio of 8.75x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Although BGA’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around BGA’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure BGA has company-specific issues impacting its capital structure decisions. I recommend you continue to research BioNeutra Global to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BGA’s future growth? Take a look at our free research report of analyst consensus for BGA’s outlook.
- Valuation: What is BGA 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 BGA is currently mispriced by the market.
- 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.