In This Article:
Acma Ltd (SGX:AYV) is a small-cap stock with a market capitalization of S$12.93M. 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, 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, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into AYV here.
Does AYV generate an acceptable amount of cash through operations?
AYV has built up its total debt levels in the last twelve months, from S$7.93M to S$8.81M , which is made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at S$6.80M 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. For this article’s sake, I won’t be looking at this today, but you can examine some of AYV’s operating efficiency ratios such as ROA here.
Can AYV pay its short-term liabilities?
At the current liabilities level of S$36.45M liabilities, the company has been able to meet these commitments with a current assets level of S$49.76M, leading to a 1.37x current account ratio. Generally, for Machinery companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can AYV service its debt comfortably?
With debt at 37.09% of equity, AYV may be thought of as appropriately levered. AYV is not taking on too much debt commitment, which may be constraining for future growth.
Next Steps:
AYV’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 proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure AYV has company-specific issues impacting its capital structure decisions. I suggest you continue to research Acma to get a better picture of the stock by looking at:
-
1. Historical Performance: What has AYV’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.
-
2. 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 pass 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.