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While small-cap stocks, such as QuickLogic Corporation (NASDAQ:QUIK) with its market cap of US$64m, 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 QUIK is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. Let's work through some financial health checks you may wish to consider if you're interested in this stock. Nevertheless, this is not a comprehensive overview, so I suggest you dig deeper yourself into QUIK here.
QUIK’s Debt (And Cash Flows)
QUIK's debt levels surged from US$6.5m to US$16m over the last 12 months made up of predominantly near term debt. With this increase in debt, the current cash and short-term investment levels stands at US$23m , ready to be used for running the business. Its negative operating cash flow means calculating cash-to-debt wouldn't be useful. For this article’s sake, I won’t be looking at this today, but you can examine some of QUIK’s operating efficiency ratios such as ROA here.
Can QUIK meet its short-term obligations with the cash in hand?
With current liabilities at US$19m, the company has been able to meet these commitments with a current assets level of US$31m, leading to a 1.64x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. For Semiconductor companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is QUIK’s debt level acceptable?
With a debt-to-equity ratio of 97%, QUIK can be considered as an above-average leveraged company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. But since QUIK is presently 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.
QUIK’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 QUIK's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for QUIK's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research QuickLogic to get a better picture 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.
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 firstname.lastname@example.org. 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.