While small-cap stocks, such as Vince Holding Corp (NYSE:VNCE) with its market cap of US$183.54m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into VNCE here.
Does VNCE produce enough cash relative to debt?
VNCE’s debt level has been constant at around US$48.68m over the previous year comprising of short- and long-term debt. At this stable level of debt, VNCE’s cash and short-term investments stands at US$5.37m 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 examine some of VNCE’s operating efficiency ratios such as ROA here.
Can VNCE pay its short-term liabilities?
At the current liabilities level of US$45.18m liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.81x. For Luxury 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.
Does VNCE face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 71.54%, VNCE can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses.
VNCE’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 will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how VNCE has been performing in the past. I recommend you continue to research Vince Holding to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for VNCE’s future growth? Take a look at our free research report of analyst consensus for VNCE’s outlook.
- Historical Performance: What has VNCE’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 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.