VolitionRx Limited (AMEX:VNRX) is a small-cap stock with a market capitalization of US$71.75M. 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? Companies operating in the Medical Equipment industry, especially ones that are currently loss-making, are more likely to be higher risk. Assessing first and foremost the financial health is crucial. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into VNRX here.
Does VNRX generate enough cash through operations?
Over the past year, VNRX has ramped up its debt from US$1.47M to US$2.77M , which is made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at US$10.12M 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. For this article’s sake, I won’t be looking at this today, but you can examine some of VNRX’s operating efficiency ratios such as ROA here.
Does VNRX’s liquid assets cover its short-term commitments?
At the current liabilities level of US$2.29M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.61x. However, a ratio greater than 3x may be considered as too high, as VNRX could be holding too much capital in a low-return investment environment.
Can VNRX service its debt comfortably?
VNRX’s level of debt is appropriate relative to its total equity, at 27.82%. VNRX is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for VNRX, and the company also has the ability and headroom to increase debt if needed going forward.
VNRX’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 exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure VNRX has company-specific issues impacting its capital structure decisions. I suggest you continue to research VolitionRx to get a better picture of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for VNRX’s future growth? Take a look at our free research report of analyst consensus for VNRX’s outlook.
- 2. Historical Performance: What has VNRX’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.
- 3. 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.