Yahoo Finance What You Must Know About Abano Healthcare Group Limited’s (NZSE:ABA) Financial Strength
Investors are always looking for growth in small-cap stocks like Abano Healthcare Group Limited (NZSE:ABA), with a market cap of NZ$191m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Healthcare industry, even ones that are profitable, are inclined towards being higher risk. Assessing first and foremost the financial health is vital. Here are few basic financial health checks you should consider before taking the plunge. However, since I only look at basic financial figures, I suggest you dig deeper yourself into ABA here.
How much cash does ABA generate through its operations?
ABA’s debt levels have fallen from NZ$116m to NZ$101m over the last 12 months , which comprises of short- and long-term debt. With this reduction in debt, ABA’s cash and short-term investments stands at NZ$3m for investing into the business. Moreover, ABA has produced cash from operations of NZ$30m in the last twelve months, resulting in an operating cash to total debt ratio of 29%, signalling that ABA’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 ABA’s case, it is able to generate 0.29x cash from its debt capital.
Can ABA pay its short-term liabilities?
Looking at ABA’s most recent NZ$37m liabilities, it seems that the business arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.53x.
Does ABA face the risk of succumbing to its debt-load?
With debt reaching 63% of equity, ABA may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if ABA’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For ABA, the ratio of 5.27x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
Although ABA’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for ABA’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Abano Healthcare Group to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for ABA’s future growth? Take a look at our free research report of analyst consensus for ABA’s outlook.
Historical Performance: What has ABA’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 editorial-team@simplywallst.com.
