- Warren Buffett: I'm not buying the Uber IPO, but I've never bought any IPO
- Does NLH generate enough cash through operations?
- Stocks To Watch Ahead Of Earnings: Match
- Can NLH pay its short-term liabilities?
- Does NLH face the risk of succumbing to its debt-load?
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- The company’s lack of a path towards profitability troubles me.
While small-cap stocks, such as Nicheliving Holdings Limited (ASX:NLH) with its market cap of AU$47.62M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps.
Warren Buffett: I'm not buying the Uber IPO, but I've never bought any IPO
I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I suggest you dig deeper yourself into NLH here.
Does NLH generate enough cash through operations?
NLH’s cash and short-term investments stands at AU$160.00K 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.
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For this article’s sake, I won’t be looking at this today, but you can examine some of NLH’s operating efficiency ratios such as ROA here.
Can NLH pay its short-term liabilities?
Looking at NLH’s most recent AU$12.36M liabilities, the company has been able to meet these commitments with a current assets level of AU$12.63M, leading to a 1.02x current account ratio.
Usually, for Real Estate companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does NLH face the risk of succumbing to its debt-load?With total debt exceeding equities, NLH is considered a highly levered company.
This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if NLH’s debt levels are sustainable by measuring interest payments against earnings of a company.
Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For NLH, the ratio of 10.57x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving NLH ample headroom to grow its debt facilities.
NLH’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise.
Though, the company exhibits proper management of current assets and upcoming liabilities.
The company’s lack of a path towards profitability troubles me.
This is only a rough assessment of financial health, and I’m sure NLH has company-specific issues impacting its capital structure decisions. I recommend you continue to research Nicheliving Holdings to get a better picture of the stock by looking at:
- Historical Performance: What has NLH’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.
- 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.
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