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Norman Broadbent Plc (LON:NBB) is a small-cap stock with a market capitalization of UK£5.8m. 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? Since NBB is loss-making right now, it’s crucial to assess the current state of its operations and pathway to profitability. Let’s work through some financial health checks you may wish to consider if you’re interested in this stock. Nevertheless, this is just a partial view of the stock, and I’d encourage you to dig deeper yourself into NBB here.
NBB’s Debt (And Cash Flows)
NBB’s debt levels surged from UK£833k to UK£1.2m over the last 12 months , which is mainly comprised of near term debt. With this increase in debt, NBB’s cash and short-term investments stands at UK£260k , ready to be used for running the business. We note it produced negative cash flow over the last twelve months. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of NBB’s operating efficiency ratios such as ROA here.
Can NBB pay its short-term liabilities?
Looking at NBB’s UK£2.9m in current liabilities, it appears that the company may not be able to easily meet these obligations given the level of current assets of UK£2.9m, with a current ratio of 0.99x. The current ratio is the number you get when you divide current assets by current liabilities.
Can NBB service its debt comfortably?
With a debt-to-equity ratio of 68%, NBB can be considered as an above-average leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. But since NBB is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although NBB’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. However, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure NBB has company-specific issues impacting its capital structure decisions. You should continue to research Norman Broadbent to get a more holistic view of the stock by looking at:
- Historical Performance: What has NBB’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.
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.