Investors are always looking for growth in small-cap stocks like TTA Holdings Limited (ASX:TTA), with a market cap of A$3.57M. However, an important fact which most ignore is: how financially healthy is the business? Given that TTA is not presently profitable, it’s essential to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into TTA here.
How does TTA’s operating cash flow stack up against its debt?
TTA’s debt level has been constant at around A$1.5M over the previous year , which is mainly comprised of near term debt. At this current level of debt, TTA’s cash and short-term investments stands at A$3.6M , ready to deploy into the business. Moreover, TTA has generated cash from operations of A$0.3M over the same time period, resulting in an operating cash to total debt ratio of 22.42%, signalling that TTA’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making companies since metrics such as return on asset (ROA) requires a positive net income. In TTA’s case, it is able to generate 0.22x cash from its debt capital.
Does TTA’s liquid assets cover its short-term commitments?
At the current liabilities level of A$3.1M liabilities, it seems that the business has been able to meet these commitments with a current assets level of A$9.0M, leading to a 2.9x current account ratio. Usually, for retail distributors companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can TTA service its debt comfortably?
With debt at 16.34% of equity, TTA may be thought of as appropriately levered. TTA is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for TTA, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
Are you a shareholder? Although TTA’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 be different. You should always be keeping abreast of market expectations for TTA’s future growth on our free analysis platform.