While small-cap stocks, such as Spherix Incorporated (NASDAQ:SPEX) with its market cap of US$9.13M, 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 SPEX is loss-making right now, it’s crucial to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into SPEX here.
How does SPEX’s operating cash flow stack up against its debt?
SPEX has shrunken its total debt levels in the last twelve months, from US$227.00K to US$48.00K . With this debt repayment, SPEX’s cash and short-term investments stands at US$4.20M 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 SPEX’s operating efficiency ratios such as ROA here.
Does SPEX’s liquid assets cover its short-term commitments?
At the current liabilities level of US$2.58M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$4.35M, with a current ratio of 1.69x. For Professional Services 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.
Can SPEX service its debt comfortably?
With debt at 1.17% of equity, SPEX may be thought of as having low leverage. This range is considered safe as SPEX is not taking on too much debt obligation, which may be constraining for future growth. SPEX’s risk around capital structure is almost non-existent, and the company has the headroom and ability to raise debt should it need to in the future.
Although SPEX’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for SPEX’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Spherix to get a more holistic view of the stock by looking at:
- Historical Performance: What has SPEX’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 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.