While small-cap stocks, such as PAR Technology Corporation (NYSE:PAR) with its market cap of US$442m, 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 PAR is loss-making right now, it’s vital 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, potential investors would need to take a closer look, and I suggest you dig deeper yourself into PAR here.
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Does PAR Produce Much Cash Relative To Its Debt?
PAR's debt levels surged from US$4.3m to US$20m over the last 12 months , which accounts for long term debt. With this rise in debt, PAR currently has US$4.1m remaining in cash and short-term investments , ready to be used for running the business. We note it produced negative cash flow over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can assess some of PAR’s operating efficiency ratios such as ROA here.
Can PAR pay its short-term liabilities?
With current liabilities at US$51m, it seems that the business has been able to meet these obligations given the level of current assets of US$61m, with a current ratio of 1.19x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Electronic companies, this is a reasonable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does PAR face the risk of succumbing to its debt-load?
PAR is a relatively highly levered company with a debt-to-equity of 46%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. Though, since PAR is currently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
PAR’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 PAR's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for PAR's financial health. Other important fundamentals need to be considered alongside. You should continue to research PAR Technology to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PAR’s future growth? Take a look at our free research report of analyst consensus for PAR’s outlook.
- Valuation: What is PAR 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 PAR 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.
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