Renren Inc (NYSE:RENN) is a small-cap stock with a market capitalization of US$605.78M. 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? Companies operating in the Internet industry, especially ones that are currently loss-making, are more likely to be higher risk. Assessing first and foremost the financial health is crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into RENN here.
Does RENN generate an acceptable amount of cash through operations?
Over the past year, RENN has ramped up its debt from US$132.59M to US$161.75M , which comprises of short- and long-term debt. With this increase in debt, RENN’s cash and short-term investments stands at US$128.60M 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 RENN’s operating efficiency ratios such as ROA here.
Does RENN’s liquid assets cover its short-term commitments?
At the current liabilities level of US$390.55M liabilities, the company has been able to meet these obligations given the level of current assets of US$493.74M, with a current ratio of 1.26x. For Internet companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Does RENN face the risk of succumbing to its debt-load?
RENN’s level of debt is appropriate relative to its total equity, at 22.82%. RENN is not taking on too much debt commitment, which may be constraining for future growth. RENN’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
RENN’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 RENN’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Renren to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for RENN’s future growth? Take a look at our free research report of analyst consensus for RENN’s outlook.
- Valuation: What is RENN 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 RENN 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.
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.