Investors are always looking for growth in small-cap stocks like Norman Broadbent Plc (LON:NBB), with a market cap of UK£5.7m. However, an important fact which most ignore is: how financially healthy is the business? Given that NBB is not presently profitable, it’s vital to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I recommend you dig deeper yourself into NBB here.
Does NBB produce enough cash relative to debt?
Over the past year, NBB has ramped up its debt from UK£444.0k to UK£1.2m . With this increase in debt, the current cash and short-term investment levels stands at UK£678.0k for investing 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 assess some of NBB’s operating efficiency ratios such as ROA here.
Does NBB’s liquid assets cover its short-term commitments?
At the current liabilities level of UK£2.5m liabilities, it appears that the company has been able to meet these commitments with a current assets level of UK£2.8m, leading to a 1.13x current account ratio. Generally, for Professional Services companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is NBB’s debt level acceptable?With a debt-to-equity ratio of 57.8%, NBB can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since NBB is presently loss-making, 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.
NBB’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for NBB’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Norman Broadbent to get a better picture 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.
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 email@example.com.