What You Must Know About UQM Technologies Inc’s (UQM) Financial Strength
While small-cap stocks, such as UQM Technologies Inc (AMEX:UQM) with its market cap of USD $62.14M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Why is it important? A major downturn in the energy industry has resulted in over 150 companies going bankrupt and has put more than 100 on the verge of a collapse, primarily due to excessive debt. These factors make a basic understanding of a company’s financial position of utmost importance for a potential investor. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. View our latest analysis for UQM Technologies
Does UQM generate enough cash through operations?
Unxpected adverse events, such as natural disasters and wars, can be a true test of a company’s capacity to meet its obligations. These adverse events bring devastation and yet does not absolve the company from its debt. We can test the impact of these adverse events by looking at whether cash from its current operations can pay back its current debt obligations. In the case of UQM, operating cash flow turned out to be -1.93x its debt level over the past twelve months. This means what UQM can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at UQM’s operations at this point in time.
Does UQM’s liquid assets cover its short-term commitments?
In addition to debtholders, a company must be able to pay its bills and salaries to keep the business running. As cash flow from operation is hindered by adverse events, UQM may need to liquidate its short-term assets to meet these upcoming payments. We test for UQM’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that UQM is able to meet its upcoming commitments with its cash and other short-term assets, which lessens our concerns for the company’s business operations should any unfavourable circumstances arise.
Is UQM’s level of debt at an acceptable level?
Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. For UQM, the debt-to-equity ratio is 50.05%, which means, while the company’s debt could pose a problem for its earnings stability, it is not at an alarmingly high level yet.
Next Steps:
Are you a shareholder? At its current level of cash flow coverage, UQM has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Given that UQM’s financial situation may change. I recommend keeping on top of market expectations for UQM’s future growth on our free analysis platform.
Are you a potential investor? Though near-term liquidity isn’t a concern, UQM’s high debt levels on top of low cash coverage of debt may not build the strongest investment case. Though, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of UQM’s track record. I encourage you to continue your research by taking a look at UQM’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.
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.
