Investors are always looking for growth in small-cap stocks like Bluebird Merchant Ventures Limited (LSE:BMV), with a market cap of UK£6.11M. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes essential, as mismanagement of capital can lead to 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. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into BMV here.
Does BMV generate enough cash through operations?
BMV has built up its total debt levels in the last twelve months, from US$92.93K to US$297.58K , which is made up of current and long term debt. With this growth in debt, BMV’s cash and short-term investments stands at US$94.99K , 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 assess some of BMV’s operating efficiency ratios such as ROA here.
Can BMV pay its short-term liabilities?
With current liabilities at US$977.95K, it appears that the company has been able to meet these commitments with a current assets level of US$5.21M, leading to a 5.33x current account ratio. However, anything above 3x is considered high and could mean that BMV has too much idle capital in low-earning investments.
Can BMV service its debt comfortably?
With a debt-to-equity ratio of 19.46%, BMV’s debt level may be seen as prudent. BMV is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.Next Steps:
Although BMV’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how BMV has been performing in the past. I suggest you continue to research Bluebird Merchant Ventures to get a more holistic view of the stock by looking at:
- Historical Performance: What has BMV’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.