Baylin Technologies Inc (TSE:BYL) is a small-cap stock with a market capitalization of CA$143m. 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? Electronic companies, especially ones that are currently loss-making, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into BYL here.
How does BYL’s operating cash flow stack up against its debt?
BYL’s debt levels surged from CA$5m to CA$31m over the last 12 months , which is made up of current and long term debt. With this increase in debt, BYL’s cash and short-term investments stands at CA$6m , 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. For this article’s sake, I won’t be looking at this today, but you can examine some of BYL’s operating efficiency ratios such as ROA here.
Can BYL meet its short-term obligations with the cash in hand?
Looking at BYL’s most recent CA$26m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.1x. Usually, for Electronic companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does BYL face the risk of succumbing to its debt-load?
BYL is a relatively highly levered company with a debt-to-equity of 55%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since BYL is currently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
BYL’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. This is only a rough assessment of financial health, and I’m sure BYL has company-specific issues impacting its capital structure decisions. I recommend you continue to research Baylin Technologies to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BYL’s future growth? Take a look at our free research report of analyst consensus for BYL’s outlook.
- Valuation: What is BYL 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 BYL 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.