Investors are always looking for growth in small-cap stocks like Corporación América Airports SA (NYSE:CAAP), with a market cap of US$1.50b. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I suggest you dig deeper yourself into CAAP here.
How does CAAP’s operating cash flow stack up against its debt?
CAAP has built up its total debt levels in the last twelve months, from US$1.11b to US$1.23b , which is made up of current and long term debt. With this rise in debt, CAAP’s cash and short-term investments stands at US$299.68m for investing 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.
Can CAAP meet its short-term obligations with the cash in hand?
At the current liabilities level of US$367.27m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.36x. Usually, for Infrastructure 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.
Is CAAP’s debt level acceptable?With total debt exceeding equities, CAAP 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. We can check to see whether CAAP 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 CAAP’s, case, the ratio of 4.95x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving CAAP ample headroom to grow its debt facilities.
At its current level of cash flow coverage, CAAP 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. This is only a rough assessment of financial health, and I’m sure CAAP has company-specific issues impacting its capital structure decisions. I suggest you continue to research Corporación América Airports to get a more holistic view 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.
- Historical Performance: What has CAAP’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.
- 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.