While small-cap stocks, such as National Access Cannabis Corp. (CVE:META) with its market cap of CA$127m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since META is loss-making right now, it’s crucial to evaluate the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company's balance sheet strength. However, this is not a comprehensive overview, so I suggest you dig deeper yourself into META here.
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
META’s Debt (And Cash Flows)
In the previous 12 months, META's rose by about CA$27m including long-term debt. With this growth in debt, the current cash and short-term investment levels stands at CA$14m , ready to be used for running the business. We note it produced negative cash flow over the last twelve months. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of META’s operating efficiency ratios such as ROA here.
Does META’s liquid assets cover its short-term commitments?
Looking at META’s CA$12m in current liabilities, the company has been able to meet these commitments with a current assets level of CA$26m, leading to a 2.26x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Healthcare companies, this is a suitable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does META face the risk of succumbing to its debt-load?
With debt reaching 53% of equity, META may be thought of as relatively highly levered. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. However, since META is presently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
META’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around META's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for META's financial health. Other important fundamentals need to be considered alongside. You should continue to research National Access Cannabis to get a better picture of the small-cap by looking at:
- Historical Performance: What has META'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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.