Yahoo Finance What Investors Should Know About Accrol Group Holdings plc's (LON:ACRL) Financial Strength
Investors are always looking for growth in small-cap stocks like Accrol Group Holdings plc (LON:ACRL), with a market cap of UK£46m. However, an important fact which most ignore is: how financially healthy is the business? Given that ACRL is not presently profitable, it’s essential to assess the current state of its operations and pathway to profitability. Let's work through some financial health checks you may wish to consider if you're interested in this stock. Nevertheless, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into ACRL here.
Does ACRL Produce Much Cash Relative To Its Debt?
ACRL's debt levels have fallen from UK£31m to UK£23m over the last 12 months , which includes long-term debt. With this debt payback, the current cash and short-term investment levels stands at UK£1.4m to keep the business going. Its negative operating cash flow means calculating cash-to-debt wouldn't be useful. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of ACRL’s operating efficiency ratios such as ROA here.
Can ACRL meet its short-term obligations with the cash in hand?
At the current liabilities level of UK£23m, it seems that the business has been able to meet these commitments with a current assets level of UK£33m, leading to a 1.45x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. For Household Products 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.
Is ACRL’s debt level acceptable?
With debt reaching 48% of equity, ACRL may be thought of as relatively highly levered. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. But since ACRL is currently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
ACRL’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. Since there is also no concerns around ACRL's liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven't considered other factors such as how ACRL has been performing in the past. I recommend you continue to research Accrol Group Holdings to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for ACRL’s future growth? Take a look at our free research report of analyst consensus for ACRL’s outlook.
Valuation: What is ACRL 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 ACRL 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.
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