【sync dropbox with icloud】DXP Enterprises, Inc. (NASDAQ:DXPE): Time For A Financial Health Check

DXP Enterprises,sync dropbox with icloud Inc. (

NASDAQ:DXPE

) is a small-cap stock with a market capitalization of US$491m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? So, understanding the company’s financial health becomes vital, since poor capital management may bring about 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, I know these factors are very high-level, so I’d encourage you to

dig deeper yourself into DXPE here

.

How much cash does DXPE generate through its operations?

DXPE’s debt level has been constant at around US$241m over the previous year including long-term debt. At this stable level of debt, DXPE’s cash and short-term investments stands at US$16m for investing into the business. On top of this, DXPE has produced US$14m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 5.8%, indicating that DXPE’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In DXPE’s case, it is able to generate 0.058x cash from its debt capital.

Can DXPE meet its short-term obligations with the cash in hand?

Looking at DXPE’s US$136m in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$362m, with a current ratio of 2.65x. For Trade Distributors companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.

NasdaqGS:DXPE Historical Debt January 2nd 19

Does DXPE face the risk of succumbing to its debt-load?

DXPE is a relatively highly levered company with a debt-to-equity of 81%. 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 DXPE’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 DXPE, the ratio of 2.76x 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:

Although DXPE’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for DXPE’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research DXP Enterprises to get a better picture of the small-cap by looking at:

Story continues

Future Outlook

: What are well-informed industry analysts predicting for DXPE’s future growth? Take a look at our

free research report of analyst consensus

for DXPE’s outlook.

Valuation

: What is DXPE 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 DXPE 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 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

[email protected]

.

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