Is Entellus Medical Inc’s (ENTL) Balance Sheet Strong Enough To Weather A Storm?
Investors are always looking for growth in small-cap stocks like Entellus Medical Inc (NASDAQ:ENTL), with a market cap of USD $441.77M. However, an important fact which most ignore is: how financially healthy is the company? The significance of doing due diligence on a company’s financial strength stems from the fact that over 20,000 companies go bankrupt in every quarter in the US alone. 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 Entellus Medical
Does ENTL generate enough cash through operations?
Unxpected adverse events, such as natural disasters and wars, can be a true test of a company’s capacity to meet its obligations. These catastrophes does not mean the company can stop servicing its debt obligations. Can ENTL pay off what it owes to its debtholder by using only cash from its operational activities? ENTL’s recent operating cash flow was -1.25 times its debt within the past year. This means what ENTL 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 ENTL’s operations at this point in time.
Can ENTL pay its short-term liabilities?
What about its commitments to other stakeholders such as payments to suppliers and employees? As cash flow from operation is hindered by adverse events, ENTL may need to liquidate its short-term assets to meet these upcoming payments. We test for ENTL’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that ENTL does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Can ENTL service its debt comfortably?
While ideally the debt-to equity ratio of a financially healthy company should be less than 40%, several factors such as industry life-cycle and economic conditions can result in a company raising a significant amount of debt. For ENTL, the debt-to-equity ratio is 30.73%, which means its risk of facing a debt-overhang is very low.
Next Steps:
Are you a shareholder? Although ENTL’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Given that its financial position may be different. I suggest researching market expectations for ENTL’s future growth on our free analysis platform.
Are you a potential investor? Entellus Medical currently has financial flexibility to ramp up growth in the future. Moreover, 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 further examine the company’s track record. I encourage you to continue your research by taking a look at ENTL’s past performance analysis on our free platform to figure out ENTL’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.
