iFresh Inc (NASDAQ:IFMK) is a small-cap stock with a market capitalization of $184.25M. 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? Companies operating in the consumer retailing industry facing headwinds from current disruption, even ones that are profitable, are inclined towards being higher risk. Assessing first and foremost the financial health is essential. Here are few basic financial health checks you should consider before taking the plunge. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into IFMK here.
How does IFMK’s operating cash flow stack up against its debt?
Over the past year, IFMK has ramped up its debt from $4.3M to $14.7M , which comprises of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at $2.5M , ready to deploy into the business. Additionally, IFMK has generated $2.6M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 17.54%, signalling that IFMK’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In IFMK’s case, it is able to generate 0.18x cash from its debt capital.
Can IFMK meet its short-term obligations with the cash in hand?
Looking at IFMK’s most recent $17.0M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.79x. Generally, for consumer retailing companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does IFMK face the risk of succumbing to its debt-load?
With total debt exceeding equities, IFMK is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether IFMK is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interets and tax (EBIT) at least three times its net interest payments is considered financially sound. In IFMK’s, case, the ratio of 0.72x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
Are you a shareholder? IFMK’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. Given that its financial position may change. You should always be keeping on top of market expectations for IFMK’s future growth on our free analysis platform.
Are you a potential investor? IFMK’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I encourage you to continue your research by taking a look at IFMK’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.
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.