What does Burcon Nutrascience Corporation's (TSE:BU) Balance Sheet Tell Us About Its Future?

Burcon Nutrascience Corporation (TSE:BU) is a small-cap stock with a market capitalization of CA$23.73m. 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 BU is not presently profitable, it’s essential to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into BU here.

Does BU produce enough cash relative to debt?

Over the past year, BU has maintained its debt levels at around CA$1.91m comprising of short- and long-term debt. At this stable level of debt, BU currently has CA$3.42m remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, 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. 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 BU’s operating efficiency ratios such as ROA here.

Can BU pay its short-term liabilities?

With current liabilities at CA$863.29k, it appears that the company has been able to meet these obligations given the level of current assets of CA$3.81m, with a current ratio of 4.41x. Though, anything above 3x is considered high and could mean that BU has too much idle capital in low-earning investments.

Can BU service its debt comfortably?

BU is a relatively highly levered company with a debt-to-equity of 81.27%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since BU 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.

Next Steps:

BU’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. Keep in mind I haven't considered other factors such as how BU has been performing in the past. I recommend you continue to research Burcon Nutrascience to get a more holistic view of the stock by looking at:

1. Historical Performance: What has BU'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.
2. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com

Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.