Indoor Skydive Australia Group Limited (ASX:IDZ) is a small-cap stock with a market capitalization of AU$25.97M. 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 IDZ is loss-making right now, it’s vital to assess 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, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into IDZ here.
How does IDZ’s operating cash flow stack up against its debt?
IDZ’s debt levels surged from AU$9.15M to AU$10.74M over the last 12 months – this includes both the current and long-term debt. With this increase in debt, IDZ currently has AU$1.75M remaining in cash and short-term investments , ready to deploy into the business. Additionally, IDZ has generated AU$2.15M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 20.00%, indicating that IDZ’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In IDZ’s case, it is able to generate 0.2x cash from its debt capital.
Does IDZ’s liquid assets cover its short-term commitments?
At the current liabilities level of AU$6.31M liabilities, it appears that the company has not been able to meet these commitments with a current assets level of AU$2.74M, leading to a 0.43x current account ratio. which is under the appropriate industry ratio of 3x.
Can IDZ service its debt comfortably?
With debt at 29.66% of equity, IDZ may be thought of as appropriately levered. This range is considered safe as IDZ is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. IDZ’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.
Next Steps:
IDZ’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. 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 IDZ’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Indoor Skydive Australia Group to get a more holistic view of the stock by looking at: