In This Article:
Site Group International Limited (ASX:SIT) is a small-cap stock with a market capitalization of AU$21m. 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 SIT is not presently profitable, it’s crucial to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into SIT here.
Does SIT produce enough cash relative to debt?
SIT has shrunken its total debt levels in the last twelve months, from AU$818k to AU$526k made up of predominantly near term debt. With this debt repayment, SIT’s cash and short-term investments stands at AU$1.5m 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of SIT’s operating efficiency ratios such as ROA here.
Can SIT pay its short-term liabilities?
Looking at SIT’s AU$6.4m in current liabilities, it seems that the business may not have an easy time meeting these commitments with a current assets level of AU$5.3m, leading to a current ratio of 0.82x.
Does SIT face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 36%, SIT’s debt level may be seen as prudent. SIT is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is very low with SIT, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
SIT has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how SIT has been performing in the past. I suggest you continue to research Site Group International to get a more holistic view of the stock by looking at:
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Historical Performance: What has SIT’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.