While small-cap stocks, such as Emblem Corp (CVE:EMC) with its market cap of CA$151m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Pharmaceuticals companies, especially ones that are currently loss-making, are inclined towards being higher risk. So, understanding the company’s financial health becomes crucial. Here are few basic financial health checks you should consider before taking the plunge. However, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into EMC here.
Does EMC produce enough cash relative to debt?
EMC has built up its total debt levels in the last twelve months, from CA$5m to CA$24m , which comprises of short- and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at CA$76m 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 EMC’s operating efficiency ratios such as ROA here.
Can EMC pay its short-term liabilities?
Looking at EMC’s most recent CA$4m liabilities, the company has been able to meet these obligations given the level of current assets of CA$83m, with a current ratio of 18.69x. Having said that, many consider anything above 3x to be quite high.
Can EMC service its debt comfortably?
With a debt-to-equity ratio of 27%, EMC’s debt level may be seen as prudent. This range is considered safe as EMC is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Risk around debt is very low for EMC, and the company also has the ability and headroom to increase debt if needed going forward.
EMC’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 EMC has company-specific issues impacting its capital structure decisions. I suggest you continue to research Emblem to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for EMC’s future growth? Take a look at our free research report of analyst consensus for EMC’s outlook.
- Valuation: What is EMC 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 EMC 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.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.