Is Innodata Inc (NASDAQ:INOD) A Financially Sound Company?
Innodata Inc (NASDAQ:INOD) is a small-cap stock with a market capitalization of US$30.28M. 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 IT industry, especially ones that are currently loss-making, tend to be high risk. So, understanding the company’s financial health becomes vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into INOD here.
Does INOD generate enough cash through operations?
In the previous 12 months, INOD’s rose by about US$224.00K . With this increase in debt, INOD currently has US$14.17M remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can examine some of INOD’s operating efficiency ratios such as ROA here.
Can INOD pay its short-term liabilities?
With current liabilities at US$12.84M, the company has been able to meet these obligations given the level of current assets of US$27.25M, with a current ratio of 2.12x. For IT companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does INOD face the risk of succumbing to its debt-load?
INOD’s level of debt is low relative to its total equity, at 3.31%. INOD is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is extremely low for INOD, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
INOD’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for INOD’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Innodata to get a better picture of the stock by looking at the areas below. Just a heads up – to access some parts of the Simply Wall St research tool you might be asked to create a free account, but it takes just one click and the information they provide is definitely worth it in my opinion.
1. Historical Performance: What has INOD’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 INOD’s historicals for more clarity.
2. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore a 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.
