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While small-cap stocks, such as Vishay Precision Group, Inc. (NYSE:VPG) with its market cap of US$466m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Understanding the company's financial health becomes vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Let's work through some financial health checks you may wish to consider if you're interested in this stock. Nevertheless, these checks don't give you a full picture, so I suggest you dig deeper yourself into VPG here.
Does VPG Produce Much Cash Relative To Its Debt?
Over the past year, VPG has reduced its debt from US$32m to US$27m , which includes long-term debt. With this debt payback, the current cash and short-term investment levels stands at US$90m to keep the business going. Additionally, VPG has produced cash from operations of US$35m over the same time period, resulting in an operating cash to total debt ratio of 131%, indicating that VPG’s debt is appropriately covered by operating cash.
Can VPG pay its short-term liabilities?
Looking at VPG’s US$55m in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$215m, with a current ratio of 3.92x. The current ratio is calculated by dividing current assets by current liabilities. Having said that, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Is VPG’s debt level acceptable?
With a debt-to-equity ratio of 12%, VPG's debt level may be seen as prudent. VPG is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if VPG’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For VPG, the ratio of 31.37x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
VPG’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for VPG's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Vishay Precision Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for VPG’s future growth? Take a look at our free research report of analyst consensus for VPG’s outlook.
- Valuation: What is VPG 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 VPG is currently mispriced by the market.
- 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.