Veris Limited (ASX:VRS) is a small-cap stock with a market capitalization of AU$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? Since VRS is loss-making right now, it’s crucial to assess the current state of its operations and pathway to profitability. 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 suggest you dig deeper yourself into VRS here.
How much cash does VRS generate through its operations?
Over the past year, VRS has ramped up its debt from AU$12m to AU$26m , which accounts for long term debt. With this rise in debt, VRS currently has AU$5.6m 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. 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 VRS’s operating efficiency ratios such as ROA here.
Can VRS meet its short-term obligations with the cash in hand?
With current liabilities at AU$36m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.34x. Usually, for Professional Services companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is VRS’s debt level acceptable?
With debt at 38% of equity, VRS may be thought of as appropriately levered. VRS is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with VRS, and the company has plenty of headroom and ability to raise debt should it need to in the future.
VRS has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for VRS’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Veris to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for VRS’s future growth? Take a look at our free research report of analyst consensus for VRS’s outlook.
- Valuation: What is VRS 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 VRS 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.