While small-cap stocks, such as KalVista Pharmaceuticals Inc (NASDAQ:KALV) with its market cap of USD $99.96M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. 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 KalVista Pharmaceuticals
Does KALV generate an acceptable amount of cash through operations?
There are many headwinds that come unannounced, such as natural disasters and political turmoil, which can challenge a small business and its ability to adapt and recover. Furthermore, failure to service debt can hurt its reputation, making funding expensive in the future. We can test the impact of these adverse events by looking at whether cash from its current operations can pay back its current debt obligations. KALV’s recent operating cash flow was -54.26 times its debt within the past year. This means what KALV 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 KALV’s operations at this point in time.
Can KALV pay its short-term liabilities?
What about its other commitments such as payments to suppliers and salaries to its employees? As cash flow from operation is hindered by adverse events, KALV 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 KALV does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Does KALV face the risk of succumbing to its debt-load?
Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. KALV’s debt-to-equity ratio stands at 1.55%, which means debt is low and does not pose any significant threat to the company’s operations. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings at least three times its interest payments is considered financially sound. In KALV’s case, its interest is excessively covered by its earnings as the ratio sits at 678x. Lenders may be less hesitant to lend out more funding as KALV’s high interest coverage is seen as responsible and safe practice.
Are you a shareholder? KALV’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Given that KALV’s financial situation may change. I suggest researching market expectations for KALV’s future growth on our free analysis platform.
Are you a potential investor? KalVista Pharmaceuticals currently has financial flexibility to ramp up growth in the future. In addition, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. In order to build your confidence in the stock, you need to further analyse KALV’s track record. You should continue your analysis by taking a look at KALV’s past performance analysis on our free platform to conclude on KALV’s financial health.