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Investors are always looking for growth in small-cap stocks like VivoPower International PLC (NASDAQ:VVPR), with a market cap of US$31.82M. However, an important fact which most ignore is: how financially healthy is the business? Since VVPR is loss-making right now, it’s crucial to evaluate the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into VVPR here.
Does VVPR generate enough cash through operations?
VVPR has built up its total debt levels in the last twelve months, from US$8.00M to US$20.26M , which is made up of current and long term debt. With this rise in debt, VVPR’s cash and short-term investments stands at US$10.97M , ready to deploy into the business. Additionally, VVPR has produced US$6.38M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 31.48%, signalling that VVPR’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In VVPR’s case, it is able to generate 0.31x cash from its debt capital.
Can VVPR meet its short-term obligations with the cash in hand?
At the current liabilities level of US$12.20M liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$30.81M, leading to a 2.53x current account ratio. Usually, for Renewable Energy companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does VVPR face the risk of succumbing to its debt-load?
VVPR’s level of debt is appropriate relative to its total equity, at 34.33%. VVPR is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is very low with VVPR, and the company has plenty of headroom and ability to raise debt should it need to in the future.
VVPR’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how VVPR has been performing in the past. You should continue to research VivoPower International to get a more holistic view of the stock by looking at the areas below. Just a heads up – to access some parts of the Simply Wall St research tool you might be asked to create a free account, but it takes just one click and the information they provide is definitely worth it in my opinion.
1. Historical Performance: What has VVPR’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 VVPR’s historicals for more clarity.
2. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore a free list of these great stocks here.
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.