In This Article:
Boom Logistics Limited (ASX:BOL) is a small-cap stock with a market capitalization of AU$104m. 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? Given that BOL is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into BOL here.
How does BOL’s operating cash flow stack up against its debt?
BOL’s debt levels have fallen from AU$47m to AU$39m over the last 12 months , which is made up of current and long term debt. With this reduction in debt, the current cash and short-term investment levels stands at AU$2m for investing into the business. Moreover, BOL has generated AU$11m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 30%, meaning that BOL’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires a positive net income. In BOL’s case, it is able to generate 0.3x cash from its debt capital.
Can BOL pay its short-term liabilities?
At the current liabilities level of AU$32m liabilities, it appears that the company has been able to meet these commitments with a current assets level of AU$46m, leading to a 1.45x current account ratio. Usually, for Trade Distributors 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 BOL face the risk of succumbing to its debt-load?
With debt at 27% of equity, BOL may be thought of as appropriately levered. This range is considered safe as BOL is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for BOL, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
BOL’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how BOL has been performing in the past. You should continue to research Boom Logistics to get a better picture of the stock by looking at: