While small-cap stocks, such as Wide Open Agriculture Limited (ASX:WOA) with its market cap of AU$9.2m, 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 WOA is loss-making right now, it’s essential to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into WOA here.
How does WOA’s operating cash flow stack up against its debt?
Over the past year, WOA has ramped up its debt from AU$247k to AU$917k . With this rise in debt, WOA’s cash and short-term investments stands at AU$5.1m , ready to deploy into the business. Moving onto cash from operations, 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. For this article’s sake, I won’t be looking at this today, but you can take a look at some of WOA’s operating efficiency ratios such as ROA here.
Does WOA’s liquid assets cover its short-term commitments?
With current liabilities at AU$1.3m, it seems that the business has been able to meet these obligations given the level of current assets of AU$5.1m, with a current ratio of 3.83x. Having said that, many consider anything above 3x to be quite high.
Is WOA’s debt level acceptable?
With debt at 20% of equity, WOA may be thought of as appropriately levered. WOA is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. WOA’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
WOA’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for WOA’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Wide Open Agriculture to get a more holistic view of the stock by looking at:
- Historical Performance: What has WOA’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 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 email@example.com.