appScatter Group plc (AIM:APPS) is a small-cap stock with a market capitalization of GBP £35.06M. 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? Internet Software and Services companies, especially ones that are currently loss-making, tend to be high risk. Evaluating financial health as part of your investment thesis is essential. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into APPS here.
How does APPS’s operating cash flow stack up against its debt?
APPS has built up its total debt levels in the last twelve months, from £0M to £1M , which is mainly comprised of near term debt. With this rise in debt, APPS’s cash and short-term investments stands at below £10K, which is concerning. Moreover, 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. For this article’s sake, I won’t be looking at this today, but you can examine some of APPS’s operating efficiency ratios such as ROA here.
Can APPS pay its short-term liabilities?
Looking at APPS’s most recent £3M liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.76x. Usually, for internet software and services companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is APPS’s level of debt at an acceptable level?
With a debt-to-equity ratio of 6.35%, APPS’s debt level is relatively low. This range is considered safe as APPS is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. APPS’s risk around capital structure is almost non-existent, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
Are you a shareholder? Although APPS’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Given that its financial position may change. I suggest researching market expectations for APPS’s future growth on our free analysis platform.