While small-cap stocks, such as NanoViricides Inc (AMEX:NNVC) with its market cap of USD $63.34M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. There are always disruptions which destabilize an existing industry, in which most small-cap companies are the first casualties. Thus, it becomes utmost important for an investor to test a company’s resilience for such contingencies. In simple terms, I believe these three small calculations tell most of the story you need to know. Check out our latest analysis for NanoViricides
Does NNVC 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. Furthermore, failure to service debt can hurt its reputation, making funding expensive in the future. 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 NNVC, operating cash flow turned out to be -1.72x its debt level over the past twelve months. This means what NNVC 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 NNVC’s operations at this point in time.
Does NNVC’s liquid assets cover its short-term commitments?
What about its other commitments such as payments to suppliers and salaries to its employees? As cash flow from operation is hindered by adverse events, NNVC may need to liquidate its short-term assets to meet these upcoming payments. We test for NNVC’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that NNVC 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.
Does NNVC face the risk of succumbing to its debt-load?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. In the case of NNVC, the debt-to-equity ratio is 22.66%, which means its debt level does not pose a threat to its operations right now.
Are you a shareholder? NNVC’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. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Given that NNVC’s financial situation may change. I recommend keeping abreast of market expectations for NNVC’s future growth on our free analysis platform.
Are you a potential investor? NNVC’s low-debt position gives it headroom for future growth funding in the future. Furthermore, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. To gain more confidence in the stock, you need to also examine NNVC’s track record. I encourage you to continue your research by taking a look at NNVC’s past performance analysis on our free platform to conclude on NNVC’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.