While small-cap stocks, such as Jason Industries Inc (NASDAQ:JASN) with its market cap of US$92.25M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since JASN is loss-making right now, it’s essential to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I recommend you dig deeper yourself into JASN here.
Does JASN generate an acceptable amount of cash through operations?
JASN has shrunken its total debt levels in the last twelve months, from US$427.17M to US$401.93M , which is made up of current and long term debt. With this debt payback, JASN currently has US$48.89M remaining in cash and short-term investments , ready to deploy into the business. Additionally, JASN has produced US$30.09M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 7.49%, meaning that JASN’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making businesses since metrics such as return on asset (ROA) requires a positive net income. In JASN’s case, it is able to generate 0.075x cash from its debt capital.
Can JASN pay its short-term liabilities?
Looking at JASN’s most recent US$100.89M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$203.99M, with a current ratio of 2.02x. Generally, for Machinery companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does JASN face the risk of succumbing to its debt-load?Since total debt levels have outpaced equities, JASN is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since JASN is currently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
JASN’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. Keep in mind I haven’t considered other factors such as how JASN has been performing in the past. I recommend you continue to research Jason Industries to get a more holistic view of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for JASN’s future growth? Take a look at our free research report of analyst consensus for JASN’s outlook.
- 2. Valuation: What is JASN 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 JASN is currently mispriced by the market.
- 3. 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.