Kala Pharmaceuticals Inc (NASDAQ:KALA) is a small-cap stock with a market capitalization of US$266.8m. 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? Pharmaceuticals companies, in particular ones that run negative earnings, are more likely to be higher risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into KALA here.
How much cash does KALA generate through its operations?
KALA has built up its total debt levels in the last twelve months, from US$9.7m to US$20.0m – this includes both the current and long-term debt. With this growth in debt, KALA’s cash and short-term investments stands at US$91.2m , ready to deploy 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. 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 KALA’s operating efficiency ratios such as ROA here.
Can KALA meet its short-term obligations with the cash in hand?
At the current liabilities level of US$9.4m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 9.78x. Having said that, anything above 3x may be considered excessive by some investors.
Does KALA face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 29.3%, KALA’s debt level may be seen as prudent. This range is considered safe as KALA is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with KALA, and the company has plenty of headroom and ability to raise debt should it need to in the future.
KALA’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, 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 KALA’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Kala Pharmaceuticals to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KALA’s future growth? Take a look at our free research report of analyst consensus for KALA’s outlook.
- Historical Performance: What has KALA’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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