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While small-cap stocks, such as accesso Technology Group plc (LON:ACSO) with its market cap of UK£242m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Electronic companies, even ones that are profitable, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is vital. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into ACSO here.
How much cash does ACSO generate through its operations?
ACSO has shrunken its total debt levels in the last twelve months, from US$37m to US$26m , which includes long-term debt. With this debt payback, the current cash and short-term investment levels stands at US$15m for investing into the business. On top of this, ACSO has generated US$27m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 104%, indicating that ACSO’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In ACSO’s case, it is able to generate 1.04x cash from its debt capital.
Does ACSO’s liquid assets cover its short-term commitments?
With current liabilities at US$27m, the company has been able to meet these obligations given the level of current assets of US$37m, with a current ratio of 1.39x. For Electronic companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is ACSO’s debt level acceptable?
With debt at 15% of equity, ACSO may be thought of as appropriately levered. ACSO is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether ACSO is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In ACSO’s, case, the ratio of 7.33x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as ACSO’s high interest coverage is seen as responsible and safe practice.
Next Steps:
ACSO’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 will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for ACSO’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research accesso Technology Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ACSO’s future growth? Take a look at our free research report of analyst consensus for ACSO’s outlook.
- Valuation: What is ACSO 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 ACSO 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 editorial-team@simplywallst.com.