Investors are always looking for growth in small-cap stocks like Innovotech Inc (CVE:IOT), with a market cap of CA$2.4m. However, an important fact which most ignore is: how financially healthy is the business? Life Sciences companies, especially ones that are currently loss-making, are more likely to be higher risk. Assessing first and foremost the financial health is essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into IOT here.
How does IOT’s operating cash flow stack up against its debt?
IOT’s debt levels have fallen from CA$69k to CA$16k over the last 12 months made up of predominantly near term debt. With this debt repayment, IOT’s cash and short-term investments stands at CA$40k for investing 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. 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 IOT’s operating efficiency ratios such as ROA here.
Can IOT pay its short-term liabilities?
With current liabilities at CA$254k, the company may not have an easy time meeting these commitments with a current assets level of CA$245k, leading to a current ratio of 0.97x.
Can IOT service its debt comfortably?
IOT’s level of debt is appropriate relative to its total equity, at 28%. This range is considered safe as IOT is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for IOT, and the company also has the ability and headroom to increase debt if needed going forward.
Although IOT’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 lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for IOT’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Innovotech to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for IOT’s future growth? Take a look at our free research report of analyst consensus for IOT’s outlook.
- Historical Performance: What has IOT’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.
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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