Beleave Inc (CNSX:BE) is a small-cap stock with a market capitalization of CA$86.3m. 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? Companies operating in the Pharmaceuticals industry, in particular ones that run negative earnings, tend to be high risk. Evaluating financial health as part of your investment thesis is crucial. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into BE here.
How does BE’s operating cash flow stack up against its debt?
Over the past year, BE has borrowed debt capital of around CA$6.8m made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at CA$12.0m for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 examine some of BE’s operating efficiency ratios such as ROA here.
Can BE meet its short-term obligations with the cash in hand?
With current liabilities at CA$6.8m, it appears that the company has been able to meet these commitments with a current assets level of CA$14.5m, leading to a 2.13x current account ratio. Generally, for Pharmaceuticals companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does BE face the risk of succumbing to its debt-load?With debt reaching 72.4% of equity, BE 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 BE is currently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
BE’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. Keep in mind I haven’t considered other factors such as how BE has been performing in the past. I recommend you continue to research Beleave to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BE’s future growth? Take a look at our free research report of analyst consensus for BE’s outlook.
- Valuation: What is BE 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 BE 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 email@example.com.