Yahoo Finance What Investors Should Know About The Keg Royalties Income Fund’s (TSE:KEG.UN) Financial Strength
Investors are always looking for growth in small-cap stocks like The Keg Royalties Income Fund (TSE:KEG.UN), with a market cap of CA$204.36m. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into KEG.UN here.
How much cash does KEG.UN generate through its operations?
Over the past year, KEG.UN has maintained its debt levels at around CA$13.95m made up of current and long term debt. At this constant level of debt, KEG.UN’s cash and short-term investments stands at CA$2.49m for investing into the business. On top of this, KEG.UN has produced CA$23.73m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 170.12%, indicating that KEG.UN’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In KEG.UN’s case, it is able to generate 1.7x cash from its debt capital.
Can KEG.UN meet its short-term obligations with the cash in hand?
At the current liabilities level of CA$3.00m liabilities, it seems that the business has been able to meet these commitments with a current assets level of CA$5.73m, leading to a 1.91x current account ratio. For Hospitality companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is KEG.UN’s debt level acceptable?
With a debt-to-equity ratio of 15.55%, KEG.UN’s debt level may be seen as prudent. This range is considered safe as KEG.UN is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether KEG.UN 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 KEG.UN’s, case, the ratio of 2.67x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
Next Steps:
KEG.UN’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, 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 KEG.UN has been performing in the past. I recommend you continue to research Keg Royalties Income Fund to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for KEG.UN’s future growth? Take a look at our free research report of analyst consensus for KEG.UN’s outlook.
Valuation: What is KEG.UN 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 KEG.UN 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 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.
