Sunworks Inc (NASDAQ:SUNW) is a small-cap stock with a market capitalization of US$25.65m. 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? Since SUNW is loss-making right now, it’s vital to understand 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. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into SUNW here.
How does SUNW’s operating cash flow stack up against its debt?
SUNW’s debt levels have fallen from US$2.33m to US$1.96m over the last 12 months – this includes both the current and long-term debt. With this reduction in debt, SUNW currently has US$6.36m remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. 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.
Can SUNW pay its short-term liabilities?
At the current liabilities level of US$24.12m liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.18x. For Electrical companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Does SUNW face the risk of succumbing to its debt-load?With debt at 14.89% of equity, SUNW may be thought of as appropriately levered. SUNW is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is very low with SUNW, and the company has plenty of headroom and ability to raise debt should it need to in the future.
SUNW’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure SUNW has company-specific issues impacting its capital structure decisions. You should continue to research Sunworks to get a more holistic view 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.
- Valuation: What is SUNW 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 SUNW 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.