Investors are always looking for growth in small-cap stocks like Retractable Technologies Inc (AMEX:RVP), with a market cap of US$28.42M. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Medical Equipment industry, especially ones that are currently loss-making, are inclined towards being higher risk. Assessing first and foremost the financial health is essential. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into RVP here.
Does RVP generate an acceptable amount of cash through operations?
RVP’s debt levels have fallen from US$3.93M to US$3.49M over the last 12 months , which is made up of current and long term debt. With this debt repayment, RVP’s cash and short-term investments stands at US$14.88M 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 take a look at some of RVP’s operating efficiency ratios such as ROA here.
Can RVP pay its short-term liabilities?
Looking at RVP’s most recent US$7.90M liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$26.61M, leading to a 3.37x current account ratio. Though, anything about 3x may be excessive, since RVP may be leaving too much capital in low-earning investments.
Is RVP’s debt level acceptable?
RVP’s level of debt is appropriate relative to its total equity, at 12.55%. RVP is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for RVP, and the company also has the ability and headroom to increase debt if needed going forward.
RVP’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure RVP has company-specific issues impacting its capital structure decisions. I suggest you continue to research Retractable Technologies to get a more holistic view of the stock by looking at:
- Historical Performance: What has RVP’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 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.