While small-cap stocks, such as Nasstar plc (AIM:NASA) with its market cap of UK£68.05M, 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 Internet industry, in particular ones that run negative earnings, are more likely to be higher risk. So, understanding the company’s financial health becomes essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into NASA here.
How does NASA’s operating cash flow stack up against its debt?
NASA’s debt levels have fallen from UK£5.80M to UK£4.15M over the last 12 months , which comprises of short- and long-term debt. With this debt payback, NASA currently has UK£5.10M remaining in cash and short-term investments , ready to deploy into the business. Moreover, NASA has generated cash from operations of UK£6.06M during the same period of time, leading to an operating cash to total debt ratio of 145.97%, indicating that NASA’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires a positive net income. In NASA’s case, it is able to generate 1.46x cash from its debt capital.
Can NASA pay its short-term liabilities?
Looking at NASA’s most recent UK£8.48M liabilities, it seems that the business has been able to meet these commitments with a current assets level of UK£8.97M, leading to a 1.06x current account ratio. For Internet companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can NASA service its debt comfortably?NASA’s level of debt is appropriate relative to its total equity, at 15.67%. This range is considered safe as NASA is not taking on too much debt obligation, which may be constraining for future growth. NASA’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
NASA’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, 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 NASA’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Nasstar to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NASA’s future growth? Take a look at our free research report of analyst consensus for NASA’s outlook.
- Valuation: What is NASA 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 NASA 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.