Investors are always looking for growth in small-cap stocks like UQM Technologies Inc (NYSEMKT:UQM), with a market cap of US$64m. However, an important fact which most ignore is: how financially healthy is the business? Since UQM is loss-making right now, it’s essential to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into UQM here.
How much cash does UQM generate through its operations?
UQM has sustained its debt level by about US$3.1m over the last 12 months including long-term debt. At this stable level of debt, UQM currently has US$2.5m remaining in cash and short-term investments , ready to deploy 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. For this article’s sake, I won’t be looking at this today, but you can assess some of UQM’s operating efficiency ratios such as ROA here.
Can UQM pay its short-term liabilities?
At the current liabilities level of US$9.3m, it appears that the company may not have an easy time meeting these commitments with a current assets level of US$9.2m, leading to a current ratio of 0.99x.
Is UQM’s debt level acceptable?
With debt reaching 66% of equity, UQM may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since UQM is presently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
UQM’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. But, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure UQM has company-specific issues impacting its capital structure decisions. I recommend you continue to research UQM Technologies to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for UQM’s future growth? Take a look at our free research report of analyst consensus for UQM’s outlook.
- Valuation: What is UQM worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether UQM is currently mispriced by the market.
- 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 past 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.
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