What You Must Know About Valeritas Holdings Inc’s (VLRX) Financial Strength
While small-cap stocks, such as Valeritas Holdings Inc (NASDAQ:VLRX) with its market cap of USD $19.37M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the healthcare equipment and supplies industry, in particular ones that run negative earnings, 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. However, I know these factors are very high-level, so I recommend dig deeper yourself into VLRX here.
How does VLRX’s operating cash flow stack up against its debt?
Over the past year, VLRX has reduced its debt from $69M to $59M , which is made up of current and long term debt. With this debt repayment, VLRX’s cash and short-term investments stands at $10M , ready to deploy into the business. However, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. 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 VLRX’s operating efficiency ratios such as ROA here.
Does VLRX’s liquid assets cover its short-term commitments?
At the current liabilities level of $12M liabilities, the company has been able to meet these commitments with a current assets level of $24M, leading to a 2.06x current account ratio. Usually, for healthcare equipment and supplies companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is VLRX’s level of debt at an acceptable level?
Since total debt levels have outpaced equities, VLRX is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since VLRX is presently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
Are you a shareholder? VLRX’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, its high liquidity means the company should continue to operate smoothly in the case of adverse events. Given that its financial position may be different. I recommend keeping on top of market expectations for VLRX’s future growth on our free analysis platform.
Are you a potential investor? VLRX’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I encourage you to continue your research by taking a look at VLRX’s past performance analysis on our free platform to conclude on VLRX’s financial health.
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.
