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Versarien plc (LON:VRS) is a small-cap stock with a market capitalization of UK£182m. 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 VRS is not presently profitable, it’s essential to assess 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, I know these factors are very high-level, so I recommend you dig deeper yourself into VRS here.
How much cash does VRS generate through its operations?
VRS’s debt levels surged from UK£1.7m to UK£2.0m over the last 12 months , which is mainly comprised of near term debt. With this rise in debt, the current cash and short-term investment levels stands at UK£6.1m for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. 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 VRS’s operating efficiency ratios such as ROA here.
Can VRS pay its short-term liabilities?
At the current liabilities level of UK£3.3m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.26x. However, a ratio above 3x may be considered excessive by some investors.
Is VRS’s debt level acceptable?
With a debt-to-equity ratio of 16%, VRS’s debt level may be seen as prudent. This range is considered safe as VRS is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for VRS, and the company also has the ability and headroom to increase debt if needed going forward.
VRS has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure VRS has company-specific issues impacting its capital structure decisions. I recommend you continue to research Versarien to get a better picture of the stock by looking at:
- Historical Performance: What has VRS’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.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.