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While small-cap stocks, such as Cycliq Group Limited (ASX:CYQ) with its market cap of AU$5m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since CYQ is loss-making right now, 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. However, I know these factors are very high-level, so I suggest you dig deeper yourself into CYQ here.
Does CYQ produce enough cash relative to debt?
CYQ has built up its total debt levels in the last twelve months, from AU$18k to AU$536k , which is mainly comprised of near term debt. With this rise in debt, CYQ’s cash and short-term investments stands at AU$315k , 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. For this article’s sake, I won’t be looking at this today, but you can assess some of CYQ’s operating efficiency ratios such as ROA here.
Can CYQ meet its short-term obligations with the cash in hand?
Looking at CYQ’s most recent AU$1m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of AU$2m, with a current ratio of 1.62x. Generally, for Leisure companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can CYQ service its debt comfortably?
CYQ’s level of debt is appropriate relative to its total equity, at 32%. This range is considered safe as CYQ is not taking on too much debt obligation, which may be constraining for future growth. CYQ’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
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CYQ’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. 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 CYQ has company-specific issues impacting its capital structure decisions. You should continue to research Cycliq Group to get a better picture of the stock by looking at:
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Historical Performance: What has CYQ’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.
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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 editorial-team@simplywallst.com.