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While small-cap stocks, such as Animalcare Group plc (LON:ANCR) with its market cap of UK£88m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Healthcare industry, in particular ones that run negative earnings, tend to be high risk. So, understanding the company’s financial health becomes vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into ANCR here.
How does ANCR’s operating cash flow stack up against its debt?
Over the past year, ANCR has ramped up its debt from UK£25m to UK£34m – this includes long-term debt. With this rise in debt, ANCR’s cash and short-term investments stands at UK£7.7m for investing into the business. Additionally, ANCR has generated cash from operations of UK£1.2m during the same period of time, resulting in an operating cash to total debt ratio of 3.7%, meaning that ANCR’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires positive earnings. In ANCR’s case, it is able to generate 0.037x cash from its debt capital.
Can ANCR meet its short-term obligations with the cash in hand?
With current liabilities at UK£18m, it appears that the company has been able to meet these obligations given the level of current assets of UK£42m, with a current ratio of 2.36x. For Healthcare companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Does ANCR face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 38%, ANCR’s debt level may be seen as prudent. ANCR is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is very low with ANCR, and the company has plenty of headroom and ability to raise debt should it need to in the future.
ANCR’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure ANCR has company-specific issues impacting its capital structure decisions. You should continue to research Animalcare Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ANCR’s future growth? Take a look at our free research report of analyst consensus for ANCR’s outlook.
- Valuation: What is ANCR 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 ANCR 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.