Investors are always looking for growth in small-cap stocks like Nasstar plc (AIM:NASA), with a market cap of £61.73M. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the internet industry, in particular ones that run negative earnings, tend to be high risk. Assessing first and foremost the financial health is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into NASA here.
Does NASA generate enough cash through operations?
NASA has shrunken its total debt levels in the last twelve months, from £6.7M to £5.8M , which is made up of current and long term debt. With this debt repayment, NASA currently has £3.0M remaining in cash and short-term investments , ready to deploy into the business. On top of this, NASA has produced cash from operations of £3.2M in the last twelve months, leading to an operating cash to total debt ratio of 0.56x, meaning that NASA’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires positive earnings. In NASA’s case, it is able to generate 0.56x cash from its debt capital.
Can NASA pay its short-term liabilities?
Looking at NASA’s most recent £7.7M liabilities, the company has not been able to meet these commitments with a current assets level of £7.7M, leading to a 1x current account ratio. which is under the appropriate industry ratio of 3x.
Can NASA service its debt comfortably?With debt at 17.39% of equity, NASA may be thought of as appropriately levered. NASA is not taking on too much debt commitment, 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.
Are you a shareholder? NASA has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. But it is still important for shareholders to understand why the company isn’t increasing its cheaper cost of capital to fund future growth, especially if meeting short-term obligations could also bring about issues. I recommend taking a look at NASA’s future growth analysis on our free platform. to properly assess what the market expects for the company moving forward.
Are you a potential investor? NASA’s relatively safe debt levels is even more impressive due to its ability to generate high cash flow, which illustrates operating efficiency. However, in the event of adversity, the company may struggle to meet its short-term obligations due to its low liquidity in assets. As a following step, you should take a look at NASA’s past performance analysis on our free platform to figure out NASA’s financial health position.