Investors are always looking for growth in small-cap stocks like Boingo Wireless Inc (NASDAQ:WIFI), with a market cap of US$1.3b. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Wireless Telecom industry facing headwinds from current disruption, especially ones that are currently loss-making, tend to be high risk. So, understanding the company's financial health becomes essential. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into WIFI here.
Does WIFI produce enough cash relative to debt?
WIFI's debt level has been constant at around US$15m over the previous year . At this current level of debt, WIFI's cash and short-term investments stands at US$13m for investing into the business. Moreover, WIFI has generated US$83m in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 546%, indicating that WIFI’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In WIFI’s case, it is able to generate 5.46x cash from its debt capital.
Can WIFI pay its short-term liabilities?
With current liabilities at US$137m, it seems that the business may not be able to easily meet these obligations given the level of current assets of US$58m, with a current ratio of 0.43x.
Is WIFI’s debt level acceptable?
WIFI’s level of debt is appropriate relative to its total equity, at 14%. WIFI is not taking on too much debt commitment, which may be constraining for future growth. Investors' risk associated with debt is very low with WIFI, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
WIFI has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. But, as shareholders, you should try and determine whether this level of debt is justified for WIFI, especially if meeting short-term obligations could also bring about issues. I admit this is a fairly basic analysis for WIFI's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Boingo Wireless to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for WIFI’s future growth? Take a look at our free research report of analyst consensus for WIFI’s outlook.
- Valuation: What is WIFI 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 WIFI is currently mispriced by the market.
- 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.
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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.
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.