Is Sinovac Biotech Ltd’s (SVA) Balance Sheet Strong Enough To Weather A Storm?
Sinovac Biotech Ltd (NASDAQ:SVA) is a small-cap stock with a market capitalization of USD $409.97M. 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? A major downturn in the energy industry has resulted in over 150 companies going bankrupt and has put more than 100 on the verge of a collapse, primarily due to excessive debt. Thus, it becomes utmost important for an investor to test a company’s resilience for such contingencies. In simple terms, I believe these three small calculations tell most of the story you need to know. See our latest analysis for SVA
Does SVA generate enough cash through operations?
While failure to manage cash has been one of the major reasons behind the demise of a lot of small businesses, mismanagement comes into the light during tough situations such as an economic recession. These catastrophes does not mean the company can stop servicing its debt obligations. We can test the impact of these adverse events by looking at whether cash from its current operations can pay back its current debt obligations. In the case of SVA, operating cash flow turned out to be -0.06x its debt level over the past twelve months. This means what SVA can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at SVA’s operations at this point in time.
Can SVA meet its short-term obligations with the cash in hand?
What about its other commitments such as payments to suppliers and salaries to its employees? As cash flow from operation is hindered by adverse events, SVA may need to liquidate its short-term assets to meet these upcoming payments. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that SVA is able to meet its upcoming commitments with its cash and other short-term assets, which lessens our concerns for the company’s business operations should any unfavourable circumstances arise.
Is SVA’s level of debt at an acceptable level?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. SVA’s debt-to-equity ratio stands at 29.62%, which means its risk of facing a debt-overhang is very low.
Next Steps:
Are you a shareholder? SVA’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Given that SVA’s financial situation may change. I suggest keeping on top of market expectations for SVA’s future growth on our free analysis platform.
Are you a potential investor? SVA’s low-debt position gives it headroom for future growth funding in the future. Moreover, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. In order to build your conviction in the stock, you need to further analyse SVA’s track record. You should continue your analysis by taking a look at SVA’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.
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.
