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While small-cap stocks, such as Arcimoto, Inc. (NASDAQ:FUV) with its market cap of US$62m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since FUV is loss-making right now, it’s essential to understand the current state of its operations and pathway to profitability. Let's work through some financial health checks you may wish to consider if you're interested in this stock. However, these checks don't give you a full picture, so I recommend you dig deeper yourself into FUV here.
Does FUV Produce Much Cash Relative To Its Debt?
In the previous 12 months, FUV's rose by about US$4.6m , which is mainly comprised of near term debt. With this growth in debt, FUV's cash and short-term investments stands at US$4.9m to keep the business going. We note it produced negative cash flow over the last twelve months. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of FUV’s operating efficiency ratios such as ROA here.
Can FUV pay its short-term liabilities?
At the current liabilities level of US$4.5m, the company has been able to meet these commitments with a current assets level of US$8.2m, leading to a 1.84x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. For Auto companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.
Can FUV service its debt comfortably?
With debt reaching 57% of equity, FUV may be thought of as relatively highly levered. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. But since FUV 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 FUV’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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I'm sure FUV has company-specific issues impacting its capital structure decisions. I suggest you continue to research Arcimoto to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FUV’s future growth? Take a look at our free research report of analyst consensus for FUV’s outlook.
- Historical Performance: What has FUV'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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.