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How Financially Strong Is Document Security Systems Inc (NYSEMKT:DSS)?

Document Security Systems Inc (NYSEMKT:DSS) is a small-cap stock with a market capitalization of US$21.08m. 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? Since DSS is loss-making right now, it’s essential 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. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into DSS here.

How much cash does DSS generate through its operations?

Over the past year, DSS has maintained its debt levels at around US$6.37m – this includes both the current and long-term debt. At this stable level of debt, DSS currently has US$4.19m remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of DSS’s operating efficiency ratios such as ROA here.

Does DSS’s liquid assets cover its short-term commitments?

At the current liabilities level of US$9.40m liabilities, it appears that the company has not been able to meet these commitments with a current assets level of US$8.38m, leading to a 0.89x current account ratio. which is under the appropriate industry ratio of 3x.

AMEX:DSS Historical Debt June 22nd 18
AMEX:DSS Historical Debt June 22nd 18

Is DSS’s debt level acceptable?

With total debt exceeding equities, DSS is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since DSS is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

DSS’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure DSS has company-specific issues impacting its capital structure decisions. You should continue to research Document Security Systems to get a more holistic view of the stock by looking at:

  1. Historical Performance: What has DSS’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.

  2. 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 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.

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