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CryoLife, Inc. (NYSE:CRY) is a small-cap stock with a market capitalization of US$1.1b. 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? Companies operating in the Medical Equipment industry, in particular ones that run negative earnings, are inclined towards being higher risk. Assessing first and foremost the financial health is essential. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I suggest you dig deeper yourself into CRY here.
Does CRY produce enough cash relative to debt?
CRY’s debt levels surged from US$68m to US$218m over the last 12 months , which accounts for long term debt. With this rise in debt, the current cash and short-term investment levels stands at US$35m , ready to deploy into the business. Moreover, CRY has produced cash from operations of US$5.3m during the same period of time, leading to an operating cash to total debt ratio of 2.4%, meaning that CRY’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires positive earnings. In CRY’s case, it is able to generate 0.024x cash from its debt capital.
Does CRY’s liquid assets cover its short-term commitments?
At the current liabilities level of US$31m, it seems that the business has been able to meet these commitments with a current assets level of US$174m, leading to a 5.66x current account ratio. Having said that, many consider a ratio above 3x to be high.
Can CRY service its debt comfortably?
With a debt-to-equity ratio of 79%, CRY can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since CRY is currently loss-making, 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 CRY’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. Since there is also no concerns around CRY’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for CRY’s financial health. Other important fundamentals need to be considered alongside. You should continue to research CryoLife to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CRY’s future growth? Take a look at our free research report of analyst consensus for CRY’s outlook.
- Historical Performance: What has CRY’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.
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 firstname.lastname@example.org.