For companies such as Pushpay Holdings Limited which have small market capitalisation, financial strength is the deciding factor for their existence in the long run.
A low debt load may lead the investors to believe that the company has a strong financial base. However, financial strength is also governed by operating cash flows and earnings stacked up against debt.
The lack of geographic diversification is one of the major reasons for which such companies are highly affected by a downturn in an industry in the region, or in the country’s economy. So, investors often go for small-cap funds.
Well-versed investors, on the other hand, allocate to individual small-caps a small part of their portfolio capital, with the primary aim of improving its risk-return profile. But that does not reduce the risks that these companies face individually.
The Company
Pushpay Holdings Limited develops mobile payment solutions with primary operations in the United States. The company was incorporated in 2011 and has its headquarters in Auckland, New Zealand. The company creates a platform for electronic payments and mobile commerce and offers tools to merchants for engaging with consumers.
The solutions provided by the company comprise Event Registration, an instinctive solution that offers registration and sign ups, a collection of payments, and other process solutions to churches. Another product is 3D Touch. It is a built-in support technology to help make repeat payments by using its platform.
The company also allows app vendors to include a five-second giving experience within their mobile apps with a few configuration solutions by using Pushpay Fastpay. The Envelope Giving solution or Virtual Terminal allows the church administration to process the envelope based debit card, credit card, and ACH payments by using Pushpay.
Does Pushpay Holdings Have Enough Cash To Weather A Storm?
Even though Pushpay Holdings has low levels of debt, it requires a sound liquidity position to carry on operations in the event of a downturn. While evaluating financial strength, one needs to compare a company’s total debt to its current assets (both liquid and cash assets). Pushpay Holdings total debt ($1M) is easily covered by the current assets ($7M), giving the company enough control over its balance sheet to make it through a downturn.
Are the Earnings of Pushpay Holdings Sufficient To Service Its Debts?
A different way to look at the financial health is to compare Pushpay Holdings’ earnings with the interest obligations. Scrutinising the income statement will reveal both these numbers. These numbers are important in determining whether Pushpay Holdings can service its debt without any hassle during adverse conditions.
A ratio of interest payments versus earnings above 5x is an indicator of a strong financial position. In the case of Pushpay Holdings, the earnings cover the interest on debt pretty well (327.6x coverage).
Conclusion
Pushpay Holdings does well on the interest costs to earnings ratio. However, it fails to impress in the case of comparison between the operating cash flows and overall debt. It appears that Pushpay Holdings needs to increase its operational efficiency to be classified as a financially healthy company.
LSI Keywords – Pushpay Holdings, financial strength, cash flows, current assets.
