While small-cap stocks, such as Intrepid Potash, Inc. (NYSE:IPI) with its market cap of US$396m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into IPI here.
How much cash does IPI generate through its operations?
IPI’s debt level has been constant at around US$60m over the previous year – this includes long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$37m for investing into the business. On top of this, IPI has generated cash from operations of US$60m in the last twelve months, resulting in an operating cash to total debt ratio of 100%, indicating that IPI’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In IPI’s case, it is able to generate 1x cash from its debt capital.
Does IPI’s liquid assets cover its short-term commitments?
With current liabilities at US$44m, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.23x. Having said that, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Does IPI face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 15%, IPI’s debt level may be seen as prudent. This range is considered safe as IPI is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether IPI is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In IPI’s, case, the ratio of 1.35x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
IPI has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for IPI’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Intrepid Potash to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for IPI’s future growth? Take a look at our free research report of analyst consensus for IPI’s outlook.
- Valuation: What is IPI worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether IPI is currently mispriced by the market.
- 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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.