Investors are always looking for growth in small-cap stocks like Polar Power Inc (NASDAQ:POLA), with a market cap of US$46.96M. However, an important fact which most ignore is: how financially healthy is the business? Given that POLA is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into POLA here.
Does POLA generate an acceptable amount of cash through operations?
Over the past year, POLA has reduced its debt from US$348.80K to US$237.06K , which comprises of short- and long-term debt. With this debt repayment, POLA’s cash and short-term investments stands at US$13.20M , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of POLA’s operating efficiency ratios such as ROA here.
Can POLA pay its short-term liabilities?
Looking at POLA’s most recent US$1.49M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 15.79x. However, a ratio greater than 3x may be considered as too high, as POLA could be holding too much capital in a low-return investment environment.
Is POLA’s debt level acceptable?
With debt at 1.04% of equity, POLA may be thought of as having low leverage. POLA is not taking on too much debt commitment, which may be constraining for future growth. POLA’s risk around capital structure is almost non-existent, and the company has the headroom and ability to raise debt should it need to in the future.
POLA’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure POLA has company-specific issues impacting its capital structure decisions. You should continue to research Polar Power to get a more holistic view of the stock by looking at:
- 1. Historical Performance: What has POLA’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.
- 2. 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.
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.