Daseke Inc (NASDAQ:DSKE) is a small-cap stock with a market capitalization of US$497.37M. 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? So, understanding the company’s financial health becomes essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into DSKE here.
How does DSKE’s operating cash flow stack up against its debt?
DSKE’s debt levels surged from US$334.34M to US$617.36M over the last 12 months , which comprises of short- and long-term debt. With this growth in debt, DSKE’s cash and short-term investments stands at US$90.68M for investing into the business. Additionally, DSKE has generated cash from operations of US$45.76M in the last twelve months, leading to an operating cash to total debt ratio of 7.41%, indicating that DSKE’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In DSKE’s case, it is able to generate 0.074x cash from its debt capital.
Can DSKE pay its short-term liabilities?
At the current liabilities level of US$108.07M liabilities, the company has been able to meet these commitments with a current assets level of US$266.71M, leading to a 2.47x current account ratio. Usually, for Transportation 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 DSKE face the risk of succumbing to its debt-load?DSKE is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether DSKE is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In DSKE’s, case, the ratio of 0.29x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
DSKE’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Though, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how DSKE has been performing in the past. You should continue to research Daseke to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for DSKE’s future growth? Take a look at our free research report of analyst consensus for DSKE’s outlook.
- Valuation: What is DSKE 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 DSKE 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.