While small-cap stocks, such as Paysauce Operations Limited (NZSE:PYS) with its market cap of NZ$82m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that PYS is not presently profitable, it’s crucial to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into PYS here.
Does PYS produce enough cash relative to debt?
In the previous 12 months, PYS’s rose by about NZ$37k – which includes long-term debt. With this ramp up in debt, PYS’s cash and short-term investments stands at NZ$204k for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of PYS’s operating efficiency ratios such as ROA here.
Does PYS’s liquid assets cover its short-term commitments?
At the current liabilities level of NZ$168k, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.75x. Generally, for General companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is PYS’s debt level acceptable?
With debt at 13% of equity, PYS may be thought of as appropriately levered. PYS is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. PYS’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.
Next Steps:
PYS’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure PYS has company-specific issues impacting its capital structure decisions. You should continue to research Paysauce Operations to get a better picture of the stock by looking at:
- Historical Performance: What has PYS’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.