Sypris Solutions Inc (NASDAQ:SYPR) is a small-cap stock with a market capitalization of US$30.2m. 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? Given that SYPR is not presently profitable, it’s vital to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into SYPR here.
How does SYPR’s operating cash flow stack up against its debt?
SYPR has built up its total debt levels in the last twelve months, from US$9.5m to US$10.1m – this includes both the current and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$7.2m , ready to deploy 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of SYPR’s operating efficiency ratios such as ROA here.
Does SYPR’s liquid assets cover its short-term commitments?
With current liabilities at US$25.7m, it seems that the business has been able to meet these commitments with a current assets level of US$44.6m, leading to a 1.73x current account ratio. For Auto Components 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 SYPR’s debt level acceptable?
With debt reaching 62.2% of equity, SYPR may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since SYPR is presently 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.
SYPR’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for SYPR’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Sypris Solutions to get a better picture of the stock by looking at:
- Historical Performance: What has SYPR’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 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.
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