First Capital Realty Inc. (OTCPK:FCRG.F): Time For A Financial Health Check
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Investors are always looking for growth in small-cap stocks like First Capital Realty Inc. (OTCPK:FCRG.F), with a market cap of US$4.0b. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Let’s work through some financial health checks you may wish to consider if you’re interested in this stock. Nevertheless, this is just a partial view of the stock, and I recommend you dig deeper yourself into FCRG.F here.
FCRG.F’s Debt (And Cash Flows)
FCRG.F’s debt level has been constant at around CA$4.4b over the previous year which accounts for long term debt. At this current level of debt, FCRG.F currently has CA$39m remaining in cash and short-term investments , ready to be used for running the business. On top of this, FCRG.F has generated cash from operations of CA$283m in the last twelve months, leading to an operating cash to total debt ratio of 6.5%, meaning that FCRG.F’s current level of operating cash is not high enough to cover debt.
Can FCRG.F meet its short-term obligations with the cash in hand?
Looking at FCRG.F’s CA$655m in current 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 0.68x. The current ratio is the number you get when you divide current assets by current liabilities.
Is FCRG.F’s debt level acceptable?
With a debt-to-equity ratio of 88%, FCRG.F can be considered as an above-average leveraged company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. We can check to see whether FCRG.F 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 FCRG.F’s, case, the ratio of 3.1x suggests that interest is appropriately covered, which means that lenders may be willing to lend out more funding as FCRG.F’s high interest coverage is seen as responsible and safe practice.
Next Steps:
FCRG.F’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. But, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure FCRG.F has company-specific issues impacting its capital structure decisions. I recommend you continue to research First Capital Realty to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for FCRG.F’s future growth? Take a look at our free research report of analyst consensus for FCRG.F’s outlook.
Valuation: What is FCRG.F 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 FCRG.F 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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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
