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While small-cap stocks, such as LogiCamms Limited (ASX:LCM) with its market cap of AU$11m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since LCM is loss-making right now, it’s essential to understand 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, this commentary is still very high-level, so I suggest you dig deeper yourself into LCM here.
How does LCM’s operating cash flow stack up against its debt?
LCM has built up its total debt levels in the last twelve months, from AU$4.0m to AU$6.0m – this includes long-term debt. With this growth in debt, LCM currently has AU$4.2m remaining in cash and short-term investments 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of LCM’s operating efficiency ratios such as ROA here.
Can LCM meet its short-term obligations with the cash in hand?
With current liabilities at AU$25m, the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.98x.
Can LCM service its debt comfortably?
LCM’s level of debt is appropriate relative to its total equity, at 25%. LCM is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for LCM, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
LCM’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Though 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 LCM’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research LogiCamms to get a better picture of the stock by looking at:
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Historical Performance: What has LCM’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.
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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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.