While small-cap stocks, such as Sunworks Inc (NASDAQ:SUNW) with its market cap of US$11m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since SUNW is loss-making right now, it’s essential to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into SUNW here.
How does SUNW’s operating cash flow stack up against its debt?
SUNW’s debt levels surged from US$2m to US$5m over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, SUNW’s cash and short-term investments stands at US$5m , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 SUNW’s operating efficiency ratios such as ROA here.
Does SUNW’s liquid assets cover its short-term commitments?
With current liabilities at US$17m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.23x. Usually, for Electrical companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can SUNW service its debt comfortably?
SUNW is a relatively highly levered company with a debt-to-equity of 45%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since SUNW is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
At its current level of cash flow coverage, SUNW has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how SUNW has been performing in the past. You should continue to research Sunworks to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SUNW’s future growth? Take a look at our free research report of analyst consensus for SUNW’s outlook.
- Historical Performance: What has SUNW’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 firstname.lastname@example.org.