Does NQ Mobile Inc’s (NQ) Debt Level Pose A Serious Problem?

NQ Mobile Inc (NYSE:NQ) is a small-cap stock with a market capitalization of $364.38M. 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? A major downturn in the energy industry has resulted in over 150 companies going bankrupt and has put more than 100 on the verge of a collapse, primarily due to excessive debt. 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. See our latest analysis for NQ

Does NQ generate an acceptable amount of cash through operations?

NYSE:NQ Historical Debt Aug 29th 17
NYSE:NQ Historical Debt Aug 29th 17
Unxpected adverse events, such as natural disasters and wars, can be a true test of a company’s capacity to meet its obligations.These catastrophes does not mean the company can stop servicing its debt obligations.Can NQ pay off what it owes to its debtholder by using only cash from its operational activities? Last year, NQ’s operating cash flow was -0.19x its current debt. This means what NQ 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 NQ’s operations at this point in time.

Can NQ meet its short-term obligations with the cash in hand?

NYSE:NQ Net Worth Aug 29th 17
NYSE:NQ Net Worth Aug 29th 17
What about its commitments to other stakeholders such as payments to suppliers and employees? As cash flow from operation is hindered by adverse events, NQ may need to liquidate its short-term assets to meet these upcoming payments. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that NQ 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 NQ 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. For NQ, the debt-to-equity ratio is 45.48%, which means, while the company’s debt could pose a problem for its earnings stability, it is not at an alarmingly high level yet.

Final words

At its current level of cash flow coverage, NQ has room for improvement to better cushion for events which may require debt repayment. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Now that you know to keep debt in mind when putting together your investment thesis, I recommend you check out our latest free analysis report on NQ Mobile to see what other factors for NQ you should consider.

PS. If you are not interested in NQ Mobile anymore, you can use our free platform to see my list of over 150 other stocks with a high growth potential.