Investors are always looking for growth in small-cap stocks like Akastor ASA (OB:AKA), with a market cap of øre4.74b. However, an important fact which most ignore is: how financially healthy is the business? Energy Services companies, in particular ones that run negative earnings, are more likely to be higher risk. Assessing first and foremost the financial health is crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into AKA here.
How much cash does AKA generate through its operations?
Over the past year, AKA has reduced its debt from øre3.35b to øre2.38b , which comprises of short- and long-term debt. With this debt repayment, AKA’s cash and short-term investments stands at øre168.00m for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can examine some of AKA’s operating efficiency ratios such as ROA here.
Does AKA’s liquid assets cover its short-term commitments?
At the current liabilities level of øre2.23b liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.3x. Generally, for Energy Services companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can AKA service its debt comfortably?With debt reaching 47.54% of equity, AKA may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since AKA is currently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
AKA’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure AKA has company-specific issues impacting its capital structure decisions. I recommend you continue to research Akastor to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AKA’s future growth? Take a look at our free research report of analyst consensus for AKA’s outlook.
- Valuation: What is AKA 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 AKA 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.