Investors are always looking for growth in small-cap stocks like Vince Holding Corp (NYSE:VNCE), with a market cap of US$189.35m. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, I know these factors are very high-level, so I recommend you dig deeper yourself into VNCE here.
How does VNCE’s operating cash flow stack up against its debt?
Over the past year, VNCE has reduced its debt from US$64.40m to US$49.60m – this includes both the current and long-term debt. With this debt payback, VNCE currently has US$5.23m remaining in cash and short-term investments , 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. For this article’s sake, I won’t be looking at this today, but you can examine some of VNCE’s operating efficiency ratios such as ROA here.
Does VNCE’s liquid assets cover its short-term commitments?
At the current liabilities level of US$41.44m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$74.87m, with a current ratio of 1.81x. For Luxury companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can VNCE service its debt comfortably?With debt reaching 71.54% of equity, VNCE may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses.
VNCE’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 will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how VNCE has been performing in the past. I recommend you continue to research Vince Holding to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for VNCE’s future growth? Take a look at our free research report of analyst consensus for VNCE’s outlook.
- Historical Performance: What has VNCE’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.