Investors are always looking for growth in small-cap stocks like QuickLogic Corporation (NASDAQ:QUIK), with a market cap of US$97m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Semiconductor industry, in particular ones that run negative earnings, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into QUIK here.
Does QUIK produce enough cash relative to debt?
QUIK’s debt levels surged from US$6.3m to US$9.5m over the last 12 months made up of predominantly near term debt. With this growth in debt, QUIK’s cash and short-term investments stands at US$24m for investing 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 QUIK’s operating efficiency ratios such as ROA here.
Can QUIK pay its short-term liabilities?
Looking at QUIK’s US$13m in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$31m, leading to a 2.39x current account ratio. Usually, for Semiconductor companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can QUIK service its debt comfortably?
With a debt-to-equity ratio of 49%, QUIK can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since QUIK is presently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although QUIK’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around QUIK’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure QUIK has company-specific issues impacting its capital structure decisions. I recommend you continue to research QuickLogic to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for QUIK’s future growth? Take a look at our free research report of analyst consensus for QUIK’s outlook.
- Historical Performance: What has QUIK’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.
To help readers see past 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.
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