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Inovio Pharmaceuticals, Inc. (NASDAQ:INO) is a small-cap stock with a market capitalization of US$240m. 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? Given that INO is not presently profitable, it’s essential to evaluate the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, this is just a partial view of the stock, and I’d encourage you to dig deeper yourself into INO here.
Does INO Produce Much Cash Relative To Its Debt?
In the previous 12 months, INO's rose by about US$84m including long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$128m to keep the business going. Its negative operating cash flow means calculating cash-to-debt wouldn't be useful. 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 INO’s operating efficiency ratios such as ROA here.
Can INO meet its short-term obligations with the cash in hand?
At the current liabilities level of US$27m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.92x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio greater than 3x may be considered high by some.
Is INO’s debt level acceptable?
With a debt-to-equity ratio of 75%, INO can be considered as an above-average leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. Though, since INO is currently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Although INO’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around INO's liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I'm sure INO has company-specific issues impacting its capital structure decisions. I recommend you continue to research Inovio Pharmaceuticals to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for INO’s future growth? Take a look at our free research report of analyst consensus for INO’s outlook.
- Historical Performance: What has INO'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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If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.