Alaska Communications Systems Group Inc (NASDAQ:ALSK) is a small-cap stock with a market capitalization of US$112.76M. 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? Telecom businesses operating in the environment facing headwinds from current disruption, in particular ones that run negative earnings, are more likely to be higher risk. So, understanding the company's financial health becomes essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into ALSK here.
How does ALSK’s operating cash flow stack up against its debt?
ALSK's debt levels have fallen from US$194.19M to US$179.60M over the last 12 months , which is made up of current and long term debt. With this debt payback, ALSK currently has US$21.23M remaining in cash and short-term investments for investing into the business. On top of this, ALSK has generated US$37.25M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 20.74%, meaning that ALSK’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires a positive net income. In ALSK’s case, it is able to generate 0.21x cash from its debt capital.
Can ALSK pay its short-term liabilities?
At the current liabilities level of US$44.32M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$59.12M, with a current ratio of 1.33x. Usually, for Telecom companies, this is a suitable ratio as there's enough of a cash buffer without holding too capital in low return investments.
Is ALSK’s debt level acceptable?With total debt exceeding equities, ALSK is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since ALSK is presently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
At its current level of cash flow coverage, ALSK has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for ALSK's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Alaska Communications Systems Group to get a more holistic view of the stock by looking at:
- 1. Historical Performance: What has ALSK'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.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.