Yahoo Finance Is Acceleware Ltd (CVE:AXE) A Financially Sound Company?
While small-cap stocks, such as Acceleware Ltd (CVE:AXE) with its market cap of CA$21m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Software industry, especially ones that are currently loss-making, are inclined towards being higher risk. Assessing first and foremost the financial health is essential. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into AXE here.
Does AXE produce enough cash relative to debt?
AXE’s debt levels have fallen from CA$932k to CA$189k over the last 12 months , which is mainly comprised of near term debt. With this reduction in debt, AXE currently has CA$703k remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of AXE’s operating efficiency ratios such as ROA here.
Does AXE’s liquid assets cover its short-term commitments?
With current liabilities at CA$995k, it seems that the business has been able to meet these commitments with a current assets level of CA$1m, leading to a 1.06x current account ratio. Usually, for Software companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can AXE service its debt comfortably?
AXE is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since AXE is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
AXE’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how AXE has been performing in the past. I recommend you continue to research Acceleware to get a more holistic view of the stock by looking at:
Historical Performance: What has AXE’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.
