Investors are always looking for growth in small-cap stocks like Dynatronics Corporation (NASDAQ:DYNT), with a market cap of USD $11.58M. However, an important fact which most ignore is: how financially healthy is the company? Why is it important? A major downturn in the energy industry has resulted in over 150 companies going bankrupt and has put more than 100 on the verge of a collapse, primarily due to excessive debt. Thus, it becomes utmost important for an investor to test a company’s resilience for such contingencies. In simple terms, I believe these three small calculations tell most of the story you need to know. Check out our latest analysis for Dynatronics
Does DYNT generate an acceptable amount of cash through operations?
While failure to manage cash has been one of the major reasons behind the demise of a lot of small businesses, mismanagement comes into the light during tough situations such as an economic recession. Furthermore, failure to service debt can hurt its reputation, making funding expensive in the future. Fortunately, we can test the company’s capacity to pay back its debtholders without summoning any catastrophes by looking at how much cash it generates from its current operations. Last year, DYNT’s operating cash flow was -0.25x its current debt. This means what DYNT 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 DYNT’s operations at this point in time.
Can DYNT 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, DYNT could be required to liquidate some of its assets to meet these upcoming payments, as cash flow from operations is hindered. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that DYNT is unable to meet all of its upcoming commitments with its cash and other short-term assets. While this is not abnormal for companies, as their cash is better invested in the business or returned to investors than lying around, it does bring about some concerns should any unfavourable circumstances arise.
Does DYNT face the risk of succumbing to its debt-load?
Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. In the case of DYNT, the debt-to-equity ratio is 49.23%, which indicates that its debt can cause trouble for the company in a downturn but it is still at a manageable level.
Are you a shareholder? At its current level of cash flow coverage, DYNT has room for improvement to better cushion for events which may require debt repayment. In addition to this, the company may not be able to pay all of its upcoming liabilities from its current short-term assets. Given that DYNT’s financial situation may change. I recommend keeping on top of market expectations for DYNT’s future growth on our free analysis platform.
Are you a potential investor? DYNT’s high debt levels along with poor cash coverage as well as low liquidity coverage of near-term obligations may not build the strongest investment case. Though, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of DYNT’s track record. As a following step, you should take a look at DYNT’s past performance analysis on our free platform to conclude on DYNT’s financial health.
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.