Investors are always looking for growth in small-cap stocks like ANY Security Printing Company Public Limited Company (BUSE:ANY), with a market cap of Ft19b. However, an important fact which most ignore is: how financially healthy is the business? Understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. We’ll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, potential investors would need to take a closer look, and I recommend you dig deeper yourself into ANY here.
ANY’s Debt (And Cash Flows)
Over the past year, ANY has ramped up its debt from Ft5.4b to Ft7.0b , which includes long-term debt. With this rise in debt, ANY currently has Ft1.0b remaining in cash and short-term investments to keep the business going. Moreover, ANY has generated cash from operations of Ft2.3b during the same period of time, leading to an operating cash to total debt ratio of 32%, signalling that ANY’s operating cash is sufficient to cover its debt.
Does ANY’s liquid assets cover its short-term commitments?
With current liabilities at Ft10b, the company has been able to meet these obligations given the level of current assets of Ft10b, with a current ratio of 1.02x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Commercial Services companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can ANY service its debt comfortably?
With debt reaching 99% of equity, ANY may be thought of as relatively highly levered. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. We can test if ANY’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For ANY, the ratio of 17.78x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving ANY ample headroom to grow its debt facilities.
Next Steps:
ANY’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around ANY’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how ANY has been performing in the past. I suggest you continue to research ANY Security Printing to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ANY’s future growth? Take a look at our free research report of analyst consensus for ANY’s outlook.
- Valuation: What is ANY 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 ANY 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.
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