Investors are always looking for growth in small-cap stocks like Vince Holding Corp (NYSE:VNCE), with a market cap of US$104.43M. However, an important fact which most ignore is: how financially healthy is the business? Since VNCE is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, this commentary is still very high-level, so I suggest you dig deeper yourself into VNCE here.
Does VNCE generate an acceptable amount of cash through operations?
VNCE has shrunken its total debt levels in the last twelve months, from US$57.62M to US$48.30M , which is made up of current and long term debt. With this debt repayment, VNCE’s cash and short-term investments stands at US$20.98M for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of VNCE’s operating efficiency ratios such as ROA here.
Can VNCE meet its short-term obligations with the cash in hand?
With current liabilities at US$50.44M, it seems that the business has been able to meet these commitments with a current assets level of US$74.61M, leading to a 1.48x current account ratio. Generally, for Luxury companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is VNCE’s debt level acceptable?
With total debt exceeding equities, VNCE 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. Though, since VNCE is presently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
VNCE’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for VNCE’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Vince Holding to get a more holistic view of the stock by looking at:
- 1. Historical Performance: What has VNCE’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.