Torslanda Property Investment AB (Publ) (OM:TORSAB) is a small-cap stock with a market capitalization of KR282.48M. 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? Assessing first and foremost the financial health is vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into TORSAB here.
How does TORSAB’s operating cash flow stack up against its debt?
TORSAB’s debt level has been constant at around KR278.40M over the previous year – this includes both the current and long-term debt. At this stable level of debt, TORSAB currently has KR35.99M remaining in cash and short-term investments , ready to deploy into the business. Moreover, TORSAB has produced cash from operations of KR33.33M in the last twelve months, resulting in an operating cash to total debt ratio of 11.97%, indicating that TORSAB’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In TORSAB’s case, it is able to generate 0.12x cash from its debt capital.
Can TORSAB meet its short-term obligations with the cash in hand?
Looking at TORSAB’s most recent KR35.78M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.11x. Generally, for Real Estate companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can TORSAB service its debt comfortably?
With total debt exceeding equities, TORSAB is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. 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 TORSAB’s case, the ratio of 3.68x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as TORSAB’s high interest coverage is seen as responsible and safe practice.
TORSAB’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 exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for TORSAB’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Torslanda Property Investment to get a more holistic view of the stock by looking at:
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