Investors are always looking for growth in small-cap stocks like Nasstar plc (LON:NASA), with a market cap of UK£67m. However, an important fact which most ignore is: how financially healthy is the business? IT companies, especially ones that are currently loss-making, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is vital. Here are few basic financial health checks you should consider before taking the plunge. However, since I only look at basic financial figures, I recommend you dig deeper yourself into NASA here.
How much cash does NASA generate through its operations?
NASA’s debt level has been constant at around UK£4.5m over the previous year including long-term debt. At this constant level of debt, NASA’s cash and short-term investments stands at UK£4.3m , ready to deploy into the business. Additionally, NASA has generated cash from operations of UK£5.1m during the same period of time, leading to an operating cash to total debt ratio of 115%, signalling that NASA’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for loss making businesses since metrics such as return on asset (ROA) requires a positive net income. In NASA’s case, it is able to generate 1.15x cash from its debt capital.
Does NASA’s liquid assets cover its short-term commitments?
Looking at NASA’s UK£9.0m in current liabilities, the company may not have an easy time meeting these commitments with a current assets level of UK£8.7m, leading to a current ratio of 0.96x.
Does NASA face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 18%, NASA’s debt level may be seen as prudent. NASA is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with NASA, and the company has plenty of headroom and ability to raise debt should it need to in the future.
NASA has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. But, as shareholders, you should try and determine whether this level of debt is justified for NASA, especially if meeting short-term obligations could also bring about issues. I admit this is a fairly basic analysis for NASA’s financial health. Other important fundamentals need to be considered alongside. I recommend 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.
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 firstname.lastname@example.org.