While small-cap stocks, such as Cerus Corporation (NASDAQ:CERS) with its market cap of US$750m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Medical Equipment companies, especially ones that are currently loss-making, tend to be high risk. Evaluating financial health as part of your investment thesis is crucial. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into CERS here.
How much cash does CERS generate through its operations?
Over the past year, CERS has maintained its debt levels at around US$30m including long-term debt. At this constant level of debt, CERS currently has US$119m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 assess some of CERS’s operating efficiency ratios such as ROA here.
Can CERS meet its short-term obligations with the cash in hand?
At the current liabilities level of US$43m, it seems that the business has been able to meet these obligations given the level of current assets of US$150m, with a current ratio of 3.48x. However, many consider a ratio above 3x to be high.
Does CERS face the risk of succumbing to its debt-load?
With debt at 33% of equity, CERS may be thought of as appropriately levered. This range is considered safe as CERS is not taking on too much debt obligation, which may be constraining for future growth. CERS’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
CERS’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how CERS has been performing in the past. I suggest you continue to research Cerus to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CERS’s future growth? Take a look at our free research report of analyst consensus for CERS’s outlook.
- Historical Performance: What has CERS’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.
To help readers see past 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.
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