Investors are always looking for growth in small-cap stocks like Corporación América Airports SA (NYSE:CAAP), with a market cap of US$1.2b. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into CAAP here.
How does CAAP’s operating cash flow stack up against its debt?
CAAP’s debt levels have fallen from US$1.3b to US$1.2b over the last 12 months – this includes both the current and long-term debt. With this reduction in debt, CAAP’s cash and short-term investments stands at US$250m , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of CAAP’s operating efficiency ratios such as ROA here.
Does CAAP’s liquid assets cover its short-term commitments?
With current liabilities at US$338m, it seems that the business has been able to meet these obligations given the level of current assets of US$441m, with a current ratio of 1.31x. For Infrastructure companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does CAAP face the risk of succumbing to its debt-load?
With total debt exceeding equities, CAAP is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if CAAP’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For CAAP, the ratio of 5.4x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
CAAP’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 an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for CAAP’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Corporación América Airports to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CAAP’s future growth? Take a look at our free research report of analyst consensus for CAAP’s outlook.
- Valuation: What is CAAP 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 CAAP 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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
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 firstname.lastname@example.org.