Is VistaGen Therapeutics Inc’s (VTGN) Balance Sheet A Threat To Its Future?
Investors are always looking for growth in small-cap stocks like VistaGen Therapeutics Inc (NASDAQ:VTGN), with a market cap of USD $8.90M. However, an important fact which most ignore is: how financially healthy is the company? There are always disruptions which destabilize an existing industry, in which most small-cap companies are the first casualties. Thus, it becomes utmost important for an investor to test a company’s resilience for such contingencies. In simple terms, I believe these three small calculations tell most of the story you need to know. Check out our latest analysis for VistaGen Therapeutics
Does VTGN generate enough cash through operations?
Unxpected adverse events, such as natural disasters and wars, can be a true test of a company’s capacity to meet its obligations. Furthermore, failure to service debt can hurt its reputation, making funding expensive in the future. Fortunately, we can test the company’s capacity to pay back its debtholders without summoning any catastrophes by looking at how much cash it generates from its current operations. In the case of VTGN, operating cash flow turned out to be -43.11x its debt level over the past twelve months. This means what VTGN can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at VTGN’s operations at this point in time.
Can VTGN meet its short-term obligations with the cash in hand?
In addition to debtholders, a company must be able to pay its bills and salaries to keep the business running. During times of unfavourable events, VTGN could be required to liquidate some of its assets to meet these upcoming payments, as cash flow from operations is hindered. We test for VTGN’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that VTGN is able to meet its upcoming commitments with its cash and other short-term assets, which lessens our concerns for the company’s business operations should any unfavourable circumstances arise.
Can VTGN service its debt comfortably?
Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. VTGN’s debt-to-equity ratio stands at 14.71%, which means its risk of facing a debt-overhang is very low.
Next Steps:
Are you a shareholder? VTGN’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Given that VTGN’s financial situation may change. I suggest keeping abreast of market expectations for VTGN’s future growth on our free analysis platform.
Are you a potential investor? VTGN’s low-debt position gives it headroom for future growth funding in the future. Furthermore, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. In order to build your conviction in the stock, you need to also analyse VTGN’s track record. You should continue your analysis by taking a look at VTGN’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.
