Yahoo Finance Is Regis Healthcare Limited’s (ASX:REG) Balance Sheet A Threat To Its Future?
While small-cap stocks, such as Regis Healthcare Limited (ASX:REG) with its market cap of AU$1.01b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Healthcare companies, even ones that are profitable, are inclined towards being higher risk. Assessing first and foremost the financial health is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into REG here.
How much cash does REG generate through its operations?
REG has built up its total debt levels in the last twelve months, from AU$210.30m to AU$0 – this includes both the current and long-term debt. With this increase in debt, REG’s cash and short-term investments stands at AU$21.66m , ready to deploy into the business. On top of this, REG has produced cash from operations of AU$151.05m in the last twelve months, leading to an operating cash to total debt ratio of 59.24%, meaning that REG’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In REG’s case, it is able to generate 0.59x cash from its debt capital.
Does REG’s liquid assets cover its short-term commitments?
At the current liabilities level of AU$1.03b liabilities, it appears that the company has not been able to meet these commitments with a current assets level of AU$36.26m, leading to a 0.035x current account ratio. which is under the appropriate industry ratio of 3x.
Is REG’s debt level acceptable?
REG is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In REG’s case, the ratio of 14.64x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as REG’s high interest coverage is seen as responsible and safe practice.
Next Steps:
REG’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. But, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure REG has company-specific issues impacting its capital structure decisions. I suggest you continue to research Regis Healthcare to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for REG’s future growth? Take a look at our free research report of analyst consensus for REG’s outlook.
Valuation: What is REG 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 REG 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.
