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Investors are always looking for growth in small-cap stocks like Cape Range Limited (ASX:CAG), with a market cap of AU$20.62M. However, an important fact which most ignore is: how financially healthy is the business? Telecom businesses operating in the environment facing headwinds from current disruption, especially ones that are currently loss-making, are inclined towards being higher 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. Nevertheless, since I only look at basic financial figures, I recommend you dig deeper yourself into CAG here.
How does CAG’s operating cash flow stack up against its debt?
Over the past year, CAG has borrowed debt capital of around AU$380.65K made up of current and long term debt. With this ramp up in debt, CAG’s cash and short-term investments stands at AU$5.18M for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 assess some of CAG’s operating efficiency ratios such as ROA here.
Does CAG’s liquid assets cover its short-term commitments?
At the current liabilities level of AU$619.53K liabilities, the company has been able to meet these obligations given the level of current assets of AU$5.92M, with a current ratio of 9.56x. Though, anything above 3x is considered high and could mean that CAG has too much idle capital in low-earning investments.
Can CAG service its debt comfortably?
CAG’s level of debt is low relative to its total equity, at 6.51%. CAG is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is extremely low for CAG, and the company also has the ability and headroom to increase debt if needed going forward.
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Although CAG’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. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for CAG’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Cape Range to get a better picture of the stock by looking at: