While small-cap stocks, such as Sypris Solutions Inc (NASDAQ:SYPR) with its market cap of $30.24M, 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 SYPR is loss-making right now, it’s essential to evaluate 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. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into SYPR here.
Does SYPR generate an acceptable amount of cash through operations?
SYPR has shrunken its total debt levels in the last twelve months, from $18.1M to $9.5M , which comprises of short- and long-term debt. With this debt repayment, SYPR’s cash and short-term investments stands at $15.3M , ready to deploy into the business. However, 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 examine 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 $17.7M, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.42x. For auto components companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can SYPR service its debt comfortably?
With debt reaching 52.14% of equity, SYPR may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since SYPR is currently unprofitable, 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.
Are you a shareholder? SYPR’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Given that its financial position may be different. You should always be keeping on top of market expectations for SYPR’s future growth on our free analysis platform.
Are you a potential investor? Though near-term liquidity isn’t an issue, SYPR’s large debt ratio along with poor cash coverage may send potential investors running the other way. However, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of SYPR’s track record. As a following step, you should take a look at SYPR’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.