Investors are always looking for growth in small-cap stocks like Servtech Global Holdings Limited (ASX:SVT), with a market cap of A$2.17M. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the it industry, especially ones that are currently loss-making, are inclined towards being higher risk. So, understanding the company’s financial health becomes essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into SVT here.
How does SVT’s operating cash flow stack up against its debt?
SVT has shrunken its total debt levels in the last twelve months, from A$2.1M to A$0.4M made up of predominantly near term debt. With this debt payback, SVT currently has A$3.3M remaining in cash and short-term investments for investing into the business. However, 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of SVT’s operating efficiency ratios such as ROA here.
Can SVT pay its short-term liabilities?
At the current liabilities level of A$1.8M 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 2.17x. For it companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does SVT face the risk of succumbing to its debt-load?
SVT’s level of debt is appropriate relative to its total equity, at 14.86%. SVT is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for SVT, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
Are you a shareholder? SVT’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 will be able to pay all of its upcoming liabilities from its current short-term assets. Given that SVT’s financial situation may change. I suggest keeping abreast of market expectations for SVT’s future growth on our free analysis platform.
Are you a potential investor? Servtech Global Holdings currently has financial flexibility to ramp up growth in the future. In addition, its high liquidity means the company should continue to operate smoothly in the case of adverse events. To gain more confidence in the stock, you need to further analyse the company’s track record. I encourage you to continue your research by taking a look at SVT’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.
To help readers see pass 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.