Investors are always looking for growth in small-cap stocks like Flexion Therapeutics, Inc. (NASDAQ:FLXN), with a market cap of US$389m. However, an important fact which most ignore is: how financially healthy is the business? Given that FLXN is not presently profitable, it’s vital to evaluate 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. Nevertheless, this is not a comprehensive overview, so I’d encourage you to dig deeper yourself into FLXN here.
FLXN’s Debt (And Cash Flows)
Over the past year, FLXN has maintained its debt levels at around US$158m including long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$259m , ready to be used for running the business. Moving on, operating cash flow was negative 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 assess some of FLXN’s operating efficiency ratios such as ROA here.
Can FLXN meet its short-term obligations with the cash in hand?
Looking at FLXN’s US$37m in current liabilities, the company has been able to meet these obligations given the level of current assets of US$285m, with a current ratio of 7.78x. The current ratio is calculated by dividing current assets by current liabilities. Having said that, many consider a ratio above 3x to be high.
Does FLXN face the risk of succumbing to its debt-load?
With total debt exceeding equity, FLXN is considered a highly levered company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. However, since FLXN 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.
FLXN’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for FLXN's financial health. Other important fundamentals need to be considered alongside. You should continue to research Flexion Therapeutics to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FLXN’s future growth? Take a look at our free research report of analyst consensus for FLXN’s outlook.
- Historical Performance: What has FLXN'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.
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