While small-cap stocks, such as Catabasis Pharmaceuticals Inc (NASDAQ:CATB) with its market cap of USD $40.92M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. There are always disruptions which destabilize an existing industry, in which most small-cap companies are the first casualties. These factors make a basic understanding of a company’s financial position of utmost importance for a potential investor. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. See our latest analysis for CATB
How does CATB’s operating cash flow stack up against its debt?
Unxpected adverse events, such as natural disasters and wars, can be a true test of a company’s capacity to meet its obligations. These adverse events bring devastation and yet does not absolve the company from its debt. Can CATB pay off what it owes to its debtholder by using only cash from its operational activities? CATB’s recent operating cash flow was -6.98 times its debt within the past year. This means what CATB can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at CATB’s operations at this point in time.
Can CATB pay its short-term liabilities?
In addition to debtholders, a company must be able to pay its bills and salaries to keep the business running. During times of unfavourable events, CATB could be required to liquidate some of its assets to meet these upcoming payments, as cash flow from operations is hindered. We test for CATB’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that CATB does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Is CATB’s level of debt at an acceptable level?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. CATB’s debt-to-equity ratio stands at 19.07%, which means its risk of facing a debt-overhang is very low.
Are you a shareholder? CATB’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Given that CATB’s financial situation may change. You should always be researching market expectations for CATB’s future growth on our free analysis platform.
Are you a potential investor? Catabasis Pharmaceuticals currently has financial flexibility to ramp up growth in the future. Furthermore, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. In order to build your conviction in the stock, you need to also analyse CATB’s track record. As a following step, you should take a look at CATB’s past performance analysis on our free platform to figure out CATB’s financial health position.
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.