Wayland Group Corp. (CNSX:WAYL) is a small-cap stock with a market capitalization of CA$230m. 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? Pharmaceuticals companies, in particular ones that run negative earnings, tend to be high risk. Evaluating financial health as part of your investment thesis is essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into WAYL here.
Does WAYL produce enough cash relative to debt?
WAYL’s debt levels surged from CA$24k to CA$16m over the last 12 months , which accounts for long term debt. With this growth in debt, the current cash and short-term investment levels stands at CA$14m 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 WAYL’s operating efficiency ratios such as ROA here.
Can WAYL meet its short-term obligations with the cash in hand?
With current liabilities at CA$17m, the company has been able to meet these obligations given the level of current assets of CA$25m, with a current ratio of 1.49x. Generally, for Pharmaceuticals companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does WAYL face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 13%, WAYL’s debt level may be seen as prudent. WAYL is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. WAYL’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.
WAYL has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, 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 WAYL has company-specific issues impacting its capital structure decisions. I suggest you continue to research Wayland Group to get a better picture of the stock by looking at:
- Historical Performance: What has WAYL’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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