iFresh Inc (NASDAQ:IFMK) is a small-cap stock with a market capitalization of US$110.92M. 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, especially ones that are currently loss-making, are inclined towards being higher risk. So, understanding the company’s financial health becomes crucial. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into IFMK here.
How does IFMK’s operating cash flow stack up against its debt?
IFMK’s debt levels surged from US$4.31M to US$14.68M over the last 12 months , which comprises of short- and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$2.51M for investing into the business. On top of this, IFMK has produced cash from operations of US$2.57M over the same time period, leading to an operating cash to total debt ratio of 17.54%, indicating that IFMK’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires a positive net income. 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?
At the current liabilities level of US$17.03M liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$30.41M, leading to a 1.79x current account ratio. For Consumer Retailing companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return 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. Though, since IFMK is presently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
IFMK’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Though, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure IFMK has company-specific issues impacting its capital structure decisions. I recommend you continue to research iFresh to get a better picture of the stock by looking at:
- 1. Historical Performance: What has IFMK’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.