Issuer Direct Corporation (AMEX:ISDR) is a small-cap stock with a market capitalization of US$48.69M. 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? Internet companies, even ones that are profitable, are more likely to be higher risk. So, understanding the company’s financial health becomes crucial. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into ISDR here.
Does ISDR generate enough cash through operations?
ISDR has increased its debt level by about US$858.00K over the last 12 months made up of current and long term debt. With this ramp up in debt, ISDR’s cash and short-term investments stands at US$4.92M , ready to deploy into the business. On top of this, ISDR has generated cash from operations of US$2.51M during the same period of time, leading to an operating cash to total debt ratio of 292.77%, indicating that ISDR’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In ISDR’s case, it is able to generate 2.93x cash from its debt capital.
Does ISDR’s liquid assets cover its short-term commitments?
With current liabilities at US$2.52M, it appears that the company has been able to meet these obligations given the level of current assets of US$7.11M, with a current ratio of 2.82x. Generally, for Internet companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does ISDR face the risk of succumbing to its debt-load?
With debt at 6.49% of equity, ISDR may be thought of as having low leverage. ISDR is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether ISDR is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In ISDR’s, case, the ratio of 1014x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as ISDR’s high interest coverage is seen as responsible and safe practice.
ISDR’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for ISDR’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Issuer Direct to get a more holistic view of the stock by looking at:
- Valuation: What is ISDR worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether ISDR is currently mispriced by the market.
- Historical Performance: What has ISDR’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.