Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Investors are always looking for growth in small-cap stocks like Bilby Plc (LON:BILB), with a market cap of UK£27m. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, this commentary is still very high-level, so I suggest you dig deeper yourself into BILB here.
How does BILB’s operating cash flow stack up against its debt?
BILB’s debt levels surged from UK£6.4m to UK£8.1m over the last 12 months , which accounts for long term debt. With this rise in debt, BILB’s cash and short-term investments stands at UK£161k , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. 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 BILB’s operating efficiency ratios such as ROA here.
Can BILB meet its short-term obligations with the cash in hand?
At the current liabilities level of UK£19m, it seems that the business has been able to meet these commitments with a current assets level of UK£25m, leading to a 1.33x current account ratio. Generally, for Commercial Services companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does BILB face the risk of succumbing to its debt-load?
With debt reaching 47% of equity, BILB 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 BILB 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 BILB’s, case, the ratio of 19.25x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as BILB’s high interest coverage is seen as responsible and safe practice.
Although BILB’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 BILB’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for BILB’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Bilby to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BILB’s future growth? Take a look at our free research report of analyst consensus for BILB’s outlook.
- Historical Performance: What has BILB’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.
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.