Sunniva Inc (CNSX:SNN) is a small-cap stock with a market capitalization of CA$251.58m. 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, especially ones that are currently loss-making, are inclined towards being higher risk. So, understanding the company’s financial health becomes vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so I’d encourage you to 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$9.67m to CA$29.88m , which comprises of short- and long-term debt. With this growth in debt, SNN’s cash and short-term investments stands at CA$11.42m 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 examine some of SNN’s operating efficiency ratios such as ROA here.
Can SNN meet its short-term obligations with the cash in hand?
At the current liabilities level of CA$15.74m liabilities, it seems that the business has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.92x, which is below the prudent industry ratio of 3x.
Can SNN service its debt comfortably?With debt at 31.98% of equity, SNN may be thought of as appropriately levered. SNN 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 SNN, and the company has plenty of 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. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. 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.