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Bioanalytical Systems, Inc. (NASDAQ:BASI) is a small-cap stock with a market capitalization of US$21m. 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? Given that BASI is not presently profitable, it’s vital to assess the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. However, potential investors would need to take a closer look, and I suggest you dig deeper yourself into BASI here.
Does BASI Produce Much Cash Relative To Its Debt?
Over the past year, BASI has ramped up its debt from US$4.4m to US$11m , which accounts for long term debt. With this growth in debt, BASI's cash and short-term investments stands at US$520k , ready to be used for running the business. Additionally, BASI has produced cash from operations of US$3.6m in the last twelve months, leading to an operating cash to total debt ratio of 33%, indicating that BASI’s current level of operating cash is high enough to cover debt.
Can BASI pay its short-term liabilities?
Looking at BASI’s US$12m in current liabilities, the company may not have an easy time meeting these commitments with a current assets level of US$7.7m, leading to a current ratio of 0.63x. The current ratio is calculated by dividing current assets by current liabilities.
Can BASI service its debt comfortably?
With total debt exceeding equity, BASI is considered a highly levered company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. However, since BASI is presently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Although BASI’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. Though 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 BASI has company-specific issues impacting its capital structure decisions. I recommend you continue to research Bioanalytical Systems to get a better picture of the stock by looking at:
- Valuation: What is BASI 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 BASI is currently mispriced by the market.
- Historical Performance: What has BASI'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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.