SilverSun Technologies Inc (NASDAQ:SSNT) is a small-cap stock with a market capitalization of US$18.8m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Companies operating in the Software industry, in particular ones that run negative earnings, tend to be high risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into SSNT here.
How does SSNT’s operating cash flow stack up against its debt?
SSNT has built up its total debt levels in the last twelve months, from US$792.2k to US$2.0m – this includes both the current and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$1.2m for investing into the business. On top of this, SSNT has generated cash from operations of US$1.3m during the same period of time, leading to an operating cash to total debt ratio of 65.7%, signalling that SSNT’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires positive earnings. In SSNT’s case, it is able to generate 0.66x cash from its debt capital.
Can SSNT meet its short-term obligations with the cash in hand?
With current liabilities at US$6.0m, it seems that the business has not been able to meet these commitments with a current assets level of US$5.0m, leading to a 0.82x current account ratio. which is under the appropriate industry ratio of 3x.
Does SSNT face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 45.7%, SSNT 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. Though, since SSNT is currently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Although SSNT’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. However, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for SSNT’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research SilverSun Technologies to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SSNT’s future growth? Take a look at our free research report of analyst consensus for SSNT’s outlook.
- Valuation: What is SSNT 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 SSNT 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.
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.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.