Radiant Logistics Inc (NYSEMKT:RLGT) is a small-cap stock with a market capitalization of US$280m. 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? Assessing first and foremost the financial health is crucial, 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. Nevertheless, since I only look at basic financial figures, I recommend you dig deeper yourself into RLGT here.
How much cash does RLGT generate through its operations?
RLGT has sustained its debt level by about US$45m over the last 12 months – this includes long-term debt. At this constant level of debt, RLGT currently has US$8.0m remaining in cash and short-term investments for investing into the business. On top of this, RLGT has produced cash from operations of US$12m over the same time period, leading to an operating cash to total debt ratio of 26%, meaning that RLGT’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In RLGT’s case, it is able to generate 0.26x cash from its debt capital.
Can RLGT pay its short-term liabilities?
With current liabilities at US$107m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.35x. Usually, for Logistics 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 RLGT face the risk of succumbing to its debt-load?
RLGT’s level of debt is appropriate relative to its total equity, at 34%. RLGT is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether RLGT 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 RLGT’s, case, the ratio of 4.82x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as RLGT’s high interest coverage is seen as responsible and safe practice.
RLGT’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure RLGT has company-specific issues impacting its capital structure decisions. You should continue to research Radiant Logistics to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for RLGT’s future growth? Take a look at our free research report of analyst consensus for RLGT’s outlook.
- Valuation: What is RLGT 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 RLGT 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.
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