Investors are always looking for growth in small-cap stocks like Sunniva Inc (CNSX:SNN), with a market cap of CA$180m. However, an important fact which most ignore is: how financially healthy is the business? Pharmaceuticals companies, especially ones that are currently loss-making, tend to be high risk. Assessing first and foremost the financial health is essential. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I suggest you dig deeper yourself into SNN here.
Does SNN produce enough cash relative to debt?
Over the past year, SNN has ramped up its debt from CA$19m to CA$23m , which is made up of current and long term debt. With this rise in debt, SNN currently has CA$18m remaining in cash and short-term investments for investing 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 assess some of SNN’s operating efficiency ratios such as ROA here.
Can SNN meet its short-term obligations with the cash in hand?
With current liabilities at CA$11m, it appears that the company has been able to meet these commitments with a current assets level of CA$22m, leading to a 1.99x current account ratio. Generally, for Pharmaceuticals companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Is SNN’s debt level acceptable?
With debt at 35% of equity, SNN may be thought of as appropriately levered. This range is considered safe as SNN is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. SNN’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Although SNN’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure SNN has company-specific issues impacting its capital structure decisions. I recommend you continue to research Sunniva to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SNN’s future growth? Take a look at our free research report of analyst consensus for SNN’s outlook.
- Valuation: What is SNN 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 SNN 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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