While small-cap stocks, such as Vince Holding Corp (NYSE:VNCE) with its market cap of $70.62M, 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 VNCE is loss-making right now, it’s essential to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, this commentary is still very high-level, so I recommend you dig deeper yourself into VNCE here.
How does VNCE’s operating cash flow stack up against its debt?
VNCE’s debt levels have fallen from $57.6M to $48.3M over the last 12 months , which comprises of short- and long-term debt. With this debt payback, VNCE’s cash and short-term investments stands at $21.0M , ready to deploy into the business. However, 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 VNCE’s operating efficiency ratios such as ROA here.
Does VNCE’s liquid assets cover its short-term commitments?
With current liabilities at $50.4M liabilities, the company has been able to meet these obligations given the level of current assets of $74.6M, with a current ratio of 1.48x. Usually, for luxury companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can VNCE service its debt comfortably?
With total debt exceeding equities, VNCE is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since VNCE is presently loss-making, sustainability of its current state of operations becomes a concern. 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? VNCE’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. Though, its high liquidity means the company should continue to operate smoothly in the case of adverse events. Given that its financial position may be different. I recommend keeping on top of market expectations for VNCE’s future growth on our free analysis platform.
Are you a potential investor? With a high level of debt on its balance sheet, VNCE could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for VNCE to increase its operational efficiency. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I encourage you to continue your research by taking a look at VNCE’s past performance analysis on our free platform to conclude on VNCE’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.