Yahoo Finance Is engage:BDR Limited’s (ASX:EN1) Balance Sheet Strong Enough To Weather A Storm?
Investors are always looking for growth in small-cap stocks like engage:BDR Limited (ASX:EN1), with a market cap of AU$36.07M. However, an important fact which most ignore is: how financially healthy is the business? Internet companies, in particular ones that run negative earnings, tend to be high risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into EN1 here.
Does EN1 generate enough cash through operations?
EN1 has shrunken its total debt levels in the last twelve months, from AU$7.29M to AU$4.43M – this includes both the current and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at AU$7.64M , ready to deploy 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 take a look at some of EN1’s operating efficiency ratios such as ROA here.
Can EN1 pay its short-term liabilities?
Looking at EN1’s most recent AU$17.39M liabilities, the company has not been able to meet these commitments with a current assets level of AU$13.36M, leading to a 0.77x current account ratio. which is under the appropriate industry ratio of 3x.
Does EN1 face the risk of succumbing to its debt-load?
With total debt exceeding equities, EN1 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. However, since EN1 is currently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
With a high level of debt on its balance sheet, EN1 could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for EN1 to increase its operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven’t considered other factors such as how EN1 has been performing in the past. I recommend you continue to research engage:BDR to get a better picture of the stock by looking at:
Historical Performance: What has EN1’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.
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.
