While small-cap stocks, such as Emblem Corp (CVE:EMC) with its market cap of CA$171.72m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Pharmaceuticals companies, especially ones that are currently loss-making, are inclined towards being higher risk. So, understanding the company’s financial health becomes 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 suggest you dig deeper yourself into EMC here.
How much cash does EMC generate through its operations?
EMC has built up its total debt levels in the last twelve months, from CA$5.34m to CA$0 , which is made up of current and long term debt. With this rise in debt, the current cash and short-term investment levels stands at CA$37.75m for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can take a look at some of EMC’s operating efficiency ratios such as ROA here.
Can EMC meet its short-term obligations with the cash in hand?
At the current liabilities level of CA$4.86m liabilities, it appears that the company has been able to meet these commitments with a current assets level of CA$42.65m, leading to a 8.78x current account ratio. However, anything above 3x is considered high and could mean that EMC has too much idle capital in low-earning investments.
Can EMC service its debt comfortably?With a debt-to-equity ratio of 25.29%, EMC’s debt level may be seen as prudent. EMC is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. EMC’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.
EMC’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 will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for EMC’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Emblem to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for EMC’s future growth? Take a look at our free research report of analyst consensus for EMC’s outlook.
- Valuation: What is EMC 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 EMC 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.