While small-cap stocks, such as Invitrocue Limited (ASX:IVQ) with its market cap of AU$36m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since IVQ is loss-making right now, it’s essential to assess the current state of its operations and pathway to profitability. We’ll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, potential investors would need to take a closer look, and I recommend you dig deeper yourself into IVQ here.
Does IVQ Produce Much Cash Relative To Its Debt?
In the previous 12 months, IVQ’s rose by about S$476k – which includes long-term debt. With this increase in debt, IVQ’s cash and short-term investments stands at S$1.2m , ready to be used for running the business. We note it produced negative cash flow over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can assess some of IVQ’s operating efficiency ratios such as ROA here.
Can IVQ pay its short-term liabilities?
With current liabilities at S$1.5m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.25x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Biotechs companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can IVQ service its debt comfortably?
With debt reaching 95% of equity, IVQ may be thought of as relatively highly levered. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. But since IVQ is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although IVQ’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around IVQ’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure IVQ has company-specific issues impacting its capital structure decisions. I suggest you continue to research Invitrocue to get a better picture of the small-cap by looking at:
- Historical Performance: What has IVQ’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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.
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