While small-cap stocks, such as Emblem Corp (CVE:EMC) with its market cap of CA$192m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Pharmaceuticals industry, in particular ones that run negative earnings, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is essential. I believe these basic checks tell most of the story you need to know. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into EMC here.
Does EMC produce enough cash relative to debt?
EMC’s debt levels surged from CA$5m to CA$24m over the last 12 months – this includes both the current and long-term debt. With this rise in debt, EMC currently has CA$76m remaining in cash and short-term investments , ready to deploy 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 assess some of EMC’s operating efficiency ratios such as ROA here.
Does EMC’s liquid assets cover its short-term commitments?
At the current liabilities level of CA$4m liabilities, the company has been able to meet these commitments with a current assets level of CA$83m, leading to a 18.69x current account ratio. However, anything above 3x may be considered excessive by some investors. They might argue EMC is leaving too much capital in low-earning investments.
Is EMC’s debt level acceptable?
With debt at 27% of equity, EMC may be thought of as appropriately levered. EMC is not taking on too much debt commitment, which may be constraining for future growth. 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.
Although EMC’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 exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how EMC has been performing in the past. 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.
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.