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While small-cap stocks, such as Phunware Inc. (NASDAQ:PHUN) with its market cap of US$1.2b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that PHUN is not presently profitable, it’s vital to understand 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 just a partial view of the stock, and I recommend you dig deeper yourself into PHUN here.
Does PHUN Produce Much Cash Relative To Its Debt?
PHUN has built up its total debt levels in the last twelve months, from US$1.8m to US$4.4m made up of predominantly near term debt. With this growth in debt, PHUN's cash and short-term investments stands at US$844k to keep the business going. Moving on, operating cash flow was negative over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can assess some of PHUN’s operating efficiency ratios such as ROA here.
Can PHUN meet its short-term obligations with the cash in hand?
At the current liabilities level of US$20m, it seems that the business may not have an easy time meeting these commitments with a current assets level of US$4.7m, leading to a current ratio of 0.24x. The current ratio is the number you get when you divide current assets by current liabilities.
Is PHUN’s debt level acceptable?
PHUN’s level of debt is appropriate relative to its total equity, at 40%. PHUN is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors' risk associated with debt is very low with PHUN, and the company has plenty of headroom and ability to raise debt should it need to in the future.
PHUN’s debt level is appropriate for a company its size. Furthermore, it is able to generate sufficient cash flow coverage, meaning it is able to put its debt in good use. Though its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I'm sure PHUN has company-specific issues impacting its capital structure decisions. I suggest you continue to research Phunware to get a more holistic view of the stock by looking at:
- Historical Performance: What has PHUN'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.
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