Yahoo Finance What Investors Should Know About First Property Group plc’s (LON:FPO) Financial Strength
Investors are always looking for growth in small-cap stocks like First Property Group plc (LON:FPO), with a market cap of UK£65.63m. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into FPO here.
How does FPO’s operating cash flow stack up against its debt?
FPO’s debt level has been constant at around UK£119.09m over the previous year comprising of short- and long-term debt. At this current level of debt, FPO currently has UK£15.32m remaining in cash and short-term investments for investing into the business. On top of this, FPO has produced UK£9.79m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 8.22%, indicating that FPO’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In FPO’s case, it is able to generate 0.082x cash from its debt capital.
Can FPO pay its short-term liabilities?
With current liabilities at UK£16.85m, the company has been able to meet these commitments with a current assets level of UK£36.16m, leading to a 2.15x current account ratio. Usually, for Real Estate companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is FPO’s debt level acceptable?
Since total debt levels have outpaced equities, FPO is a highly leveraged 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 FPO’s case, the ratio of 3.52x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving FPO ample headroom to grow its debt facilities.
Next Steps:
At its current level of cash flow coverage, FPO has room for improvement to better cushion for events which may require debt repayment. Though, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure FPO has company-specific issues impacting its capital structure decisions. I suggest you continue to research First Property Group to get a better picture of the stock by looking at:
Valuation: What is FPO 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 FPO is currently mispriced by the market.
Historical Performance: What has FPO’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 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.
