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Kraken Robotics Inc. (CVE:PNG) is a small-cap stock with a market capitalization of CA$82m. 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? Electronic companies, especially ones that are currently loss-making, 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, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into PNG here.
Does PNG produce enough cash relative to debt?
PNG has increased its debt level by about CA$601k over the last 12 months accounting for long term debt. With this growth in debt, PNG’s cash and short-term investments stands at CA$1.6m , 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 PNG’s operating efficiency ratios such as ROA here.
Does PNG’s liquid assets cover its short-term commitments?
With current liabilities at CA$5.8m, the company may not have an easy time meeting these commitments with a current assets level of CA$5.3m, leading to a current ratio of 0.92x.
Is PNG’s debt level acceptable?
With a debt-to-equity ratio of 26%, PNG’s debt level may be seen as prudent. This range is considered safe as PNG is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Risk around debt is very low for PNG, and the company also has the ability and headroom to increase debt if needed going forward.
PNG has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Though its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for PNG’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Kraken Robotics to get a better picture of the stock by looking at:
- Historical Performance: What has PNG’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.
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.