Yahoo Finance What Investors Should Know About Donaco International Limited’s (ASX:DNA) Financial Strength
Donaco International Limited (ASX:DNA) is a small-cap stock with a market capitalization of AU$123.63m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Since DNA is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into DNA here.
Does DNA produce enough cash relative to debt?
DNA has shrunken its total debt levels in the last twelve months, from AU$151.80m to AU$108.46m , which is made up of current and long term debt. With this reduction in debt, the current cash and short-term investment levels stands at AU$66.03m for investing into the business. On top of this, DNA has generated cash from operations of AU$47.36m in the last twelve months, resulting in an operating cash to total debt ratio of 43.66%, meaning that DNA’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires positive earnings. In DNA’s case, it is able to generate 0.44x cash from its debt capital.
Can DNA meet its short-term obligations with the cash in hand?
Looking at DNA’s most recent AU$99.49m liabilities, it appears that the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.89x, which is below the prudent industry ratio of 3x.
Is DNA’s debt level acceptable?
With debt at 22.35% of equity, DNA may be thought of as appropriately levered. This range is considered safe as DNA is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for DNA, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
DNA has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. However, 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 DNA’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Donaco International to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for DNA’s future growth? Take a look at our free research report of analyst consensus for DNA’s outlook.
Valuation: What is DNA worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether DNA is currently mispriced by the market.
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.
