Peak Positioning Technologies Inc (CNSX:PKK) is a small-cap stock with a market capitalization of CA$29.60m. 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 Software 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 crucial. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into PKK here.
Does PKK produce enough cash relative to debt?
PKK’s debt levels surged from CA$544.88k to CA$4.26m over the last 12 months – this includes both the current and long-term debt. With this rise in debt, PKK currently has CA$3.67m 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of PKK’s operating efficiency ratios such as ROA here.
Does PKK’s liquid assets cover its short-term commitments?
Looking at PKK’s most recent CA$289.45k liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 47.37x. However, a ratio greater than 3x may be considered as too high, as PKK could be holding too much capital in a low-return investment environment.
Does PKK face the risk of succumbing to its debt-load?PKK’s level of debt is appropriate relative to its total equity, at 32.34%. PKK 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 PKK, and the company has plenty of headroom and ability to raise debt should it need to in the future.
PKK’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 exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure PKK has company-specific issues impacting its capital structure decisions. I recommend you continue to research Peak Positioning Technologies to get a better picture of the stock by looking at:
- Historical Performance: What has PKK’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.