What You Must Know About Cumberland Pharmaceuticals Inc’s (NASDAQ:CPIX) Financial Strength
Investors are always looking for growth in small-cap stocks like Cumberland Pharmaceuticals Inc (NASDAQ:CPIX), with a market cap of US$94.27M. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Pharmaceuticals industry, in particular ones that run negative earnings, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is crucial. 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’d encourage you to dig deeper yourself into CPIX here.
Does CPIX generate an acceptable amount of cash through operations?
CPIX’s debt levels surged from US$4.10M to US$9.80M over the last 12 months – this includes both the current and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$50.09M for investing 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 take a look at some of CPIX’s operating efficiency ratios such as ROA here.
Can CPIX meet its short-term obligations with the cash in hand?
Looking at CPIX’s most recent US$17.69M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$68.68M, with a current ratio of 3.88x. However, anything above 3x is considered high and could mean that CPIX has too much idle capital in low-earning investments.
Does CPIX face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 19.71%, CPIX’s debt level may be seen as prudent. This range is considered safe as CPIX is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for CPIX, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
CPIX’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 proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for CPIX’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Cumberland Pharmaceuticals to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for CPIX’s future growth? Take a look at our free research report of analyst consensus for CPIX’s outlook.
Historical Performance: What has CPIX’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.
