Investors are always looking for growth in small-cap stocks like Inuvo Inc (AMEX:INUV), with a market cap of USD $26.20M. However, an important fact which most ignore is: how financially healthy is the business? Internet Software and Services companies, in particular ones that run negative earnings, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into INUV here.
How does INUV’s operating cash flow stack up against its debt?
INUV has shrunken its total debt levels in the last twelve months, from $0M to $0M , which comprises of short- and long-term debt. With this debt repayment, INUV currently has $4M remaining in cash and short-term investments for investing into the business. Additionally, INUV has generated cash from operations of $1M over the same time period, resulting in an operating cash to total debt ratio of 33.74x, signalling that INUV’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for unprofitable companies since metrics such as return on asset (ROA) requires positive earnings. In INUV’s case, it is able to generate 33.74x cash from its debt capital.
Does INUV’s liquid assets cover its short-term commitments?
Looking at INUV’s most recent $12M liabilities, the company has not been able to meet these commitments with a current assets level of $12M, leading to a 0.99x current account ratio. which is under the appropriate industry ratio of 3x.
Does INUV face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 43.58%, INUV can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since INUV is presently loss-making, 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.
Are you a shareholder? INUV’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. In addition to this, the company may not be able to pay all of its upcoming liabilities from its current short-term assets. Given that INUV’s financial situation may change. You should always be keeping on top of market expectations for INUV’s future growth on our free analysis platform.
Are you a potential investor? INUV’s large debt ratio on top of low cash coverage of debt as well as low liquidity coverage of near-term commitments may not build the strongest investment case. Though, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of INUV’s track record. I encourage you to continue your research by taking a look at INUV’s past performance analysis on our free platform to conclude on INUV’s financial health.
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.