Investors are always looking for growth in small-cap stocks like xG Technology Inc (NASDAQ:XGTI), with a market cap of US$15.11M. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Communications industry, especially ones that are currently loss-making, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is essential. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into XGTI here.
How does XGTI’s operating cash flow stack up against its debt?
Over the past year, XGTI has maintained its debt levels at around US$2.05M made up of current and long term debt. At this constant level of debt, XGTI’s cash and short-term investments stands at US$2.80M 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 XGTI’s operating efficiency ratios such as ROA here.
Can XGTI pay its short-term liabilities?
Looking at XGTI’s most recent US$18.99M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$26.52M, with a current ratio of 1.4x. Generally, for Communications companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does XGTI face the risk of succumbing to its debt-load?With debt at 11.62% of equity, XGTI may be thought of as appropriately levered. This range is considered safe as XGTI is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with XGTI, and the company has plenty of headroom and ability to raise debt should it need to in the future.
XGTI’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how XGTI has been performing in the past. I suggest you continue to research xG Technology to get a better picture of the stock by looking at:
- 1. Historical Performance: What has XGTI’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.
- 2. 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.