Yahoo Finance Is Air Partner plc’s (LON:AIR) Balance Sheet Strong Enough To Weather A Storm?
While small-cap stocks, such as Air Partner plc (LON:AIR) with its market cap of UK£54.1m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. 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 AIR here.
Does AIR produce enough cash relative to debt?
AIR has shrunken its total debt levels in the last twelve months, from UK£3.0m to UK£2.5m , which is made up of current and long term debt. With this debt repayment, AIR currently has UK£18.0m remaining in cash and short-term investments , ready to deploy into the business. Additionally, AIR has generated cash from operations of UK£10.2m in the last twelve months, resulting in an operating cash to total debt ratio of 410%, meaning that AIR’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In AIR’s case, it is able to generate 4.1x cash from its debt capital.
Does AIR’s liquid assets cover its short-term commitments?
With current liabilities at UK£47.4m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.07x. For Airlines companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does AIR face the risk of succumbing to its debt-load?
With debt at 21.7% of equity, AIR may be thought of as appropriately levered. AIR is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether AIR is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In AIR’s, case, the ratio of 47.35x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as AIR’s high interest coverage is seen as responsible and safe practice.
Next Steps:
AIR’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how AIR has been performing in the past. I suggest you continue to research Air Partner to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AIR’s future growth? Take a look at our free research report of analyst consensus for AIR’s outlook.
Valuation: What is AIR 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 AIR 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 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 editorial-team@simplywallst.com.
