FTE Networks Inc (AMEX:FTNW) is a small-cap stock with a market capitalization of US$103.89M. 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? Since FTNW is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into FTNW here.
How does FTNW’s operating cash flow stack up against its debt?
FTNW has built up its total debt levels in the last twelve months, from US$10.84M to US$18.44M , which comprises of short- and long-term debt. With this rise in debt, FTNW’s cash and short-term investments stands at US$1.41M for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of FTNW’s operating efficiency ratios such as ROA here.
Can FTNW pay its short-term liabilities?
With current liabilities at US$14.66M, it appears that the company has not been able to meet these commitments with a current assets level of US$11.26M, leading to a 0.77x current account ratio. which is under the appropriate industry ratio of 3x.
Is FTNW’s debt level acceptable?
Since total debt levels have outpaced equities, FTNW is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since FTNW is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
FTNW’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for FTNW’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research FTE Networks to get a more holistic view of the stock by looking at: