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While small-cap stocks, such as Quotient Technology Inc. (NYSE:QUOT) with its market cap of US$905m, 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 QUOT is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into QUOT here.
QUOT’s Debt (And Cash Flows)
QUOT's debt levels surged from US$146m to US$156m over the last 12 months – this includes long-term debt. With this growth in debt, QUOT currently has US$323m remaining in cash and short-term investments to keep the business going. Additionally, QUOT has produced cash from operations of US$22m during the same period of time, resulting in an operating cash to total debt ratio of 14%, meaning that QUOT’s operating cash is less than its debt.
Can QUOT pay its short-term liabilities?
At the current liabilities level of US$92m, the company has been able to meet these obligations given the level of current assets of US$445m, with a current ratio of 4.83x. The current ratio is the number you get when you divide current assets by current liabilities. However, many consider a ratio above 3x to be high.
Can QUOT service its debt comfortably?
QUOT is a relatively highly levered company with a debt-to-equity of 41%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. But since QUOT is currently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
QUOT’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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I'm sure QUOT has company-specific issues impacting its capital structure decisions. I suggest you continue to research Quotient Technology to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for QUOT’s future growth? Take a look at our free research report of analyst consensus for QUOT’s outlook.
- Valuation: What is QUOT 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 QUOT 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.
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.