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Investors are always looking for growth in small-cap stocks like BioNeutra Global Corporation (CVE:BGA), with a market cap of CA$21m. However, an important fact which most ignore is: how financially healthy is the business? Understanding the company’s financial health becomes essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. The following basic checks can help you get a picture of the company’s balance sheet strength. However, this is not a comprehensive overview, so I suggest you dig deeper yourself into BGA here.
Does BGA Produce Much Cash Relative To Its Debt?
BGA’s debt levels have fallen from CA$9.8m to CA$8.7m over the last 12 months – this includes long-term debt. With this debt repayment, BGA’s cash and short-term investments stands at CA$1.6m , ready to be used for running the business. Additionally, BGA has generated cash from operations of CA$2.4m over the same time period, resulting in an operating cash to total debt ratio of 28%, indicating that BGA’s debt is appropriately covered by operating cash.
Can BGA pay its short-term liabilities?
Looking at BGA’s CA$14m in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of CA$22m, leading to a 1.64x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. For Personal Products companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is BGA’s debt level acceptable?
BGA is a relatively highly levered company with a debt-to-equity of 52%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. 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 2.03x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
BGA’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. 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. You should 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.