Are Vermillion Inc’s (NASDAQ:VRML) Interest Costs Too High?
Investors are always looking for growth in small-cap stocks like Vermillion Inc (NASDAQ:VRML), with a market cap of $115.80M. However, an important fact which most ignore is: how financially healthy is the business? Medical Equipment companies, in particular ones that run negative earnings, are inclined towards being higher risk. So, understanding the company’s financial health becomes vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into VRML here.
Does VRML generate enough cash through operations?
Over the past year, VRML has borrowed debt capital of around $1.8M comprising of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at $5.2M , ready to deploy into the business. Though its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 VRML’s operating efficiency ratios such as ROA here.
Can VRML pay its short-term liabilities?
At the current liabilities level of $2.6M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.39x. Generally, for medical equipment companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does VRML face the risk of succumbing to its debt-load?
VRML’s level of debt is appropriate relative to its total equity, at 29.03%. VRML is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is very low with VRML, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
Are you a shareholder? VRML’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Given that its financial position may change. You should always be keeping abreast of market expectations for VRML’s future growth on our free analysis platform.
Are you a potential investor? Vermillion currently has financial flexibility to ramp up growth in the future. Furthermore, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. To gain more conviction in the stock, you need to also analyse the company’s track record. I encourage you to continue your research by taking a look at VRML’s past performance analysis on our free platform to conclude on VRML’s financial health.
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.
