ASV Holdings Inc (NASDAQ:ASV) is a small-cap stock with a market capitalization of US$29m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Given that ASV is not presently profitable, it’s vital to understand the current state of its operations and pathway to profitability. 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 recommend you dig deeper yourself into ASV here.
Does ASV produce enough cash relative to debt?
ASV has built up its total debt levels in the last twelve months, from US$25m to US$29m , which includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at under $10K, which is rather low. On top of this, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. 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 ASV’s operating efficiency ratios such as ROA here.
Does ASV’s liquid assets cover its short-term commitments?
Looking at ASV’s US$24m in current liabilities, the company has been able to meet these obligations given the level of current assets of US$52m, with a current ratio of 2.21x. Usually, for Machinery companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does ASV face the risk of succumbing to its debt-load?
With debt reaching 44% of equity, ASV 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. But since ASV is presently unprofitable, 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.
ASV’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 ASV’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for ASV’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research ASV Holdings to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ASV’s future growth? Take a look at our free research report of analyst consensus for ASV’s outlook.
- Historical Performance: What has ASV’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 firstname.lastname@example.org.