Is Cesca Therapeutics Inc’s (NASDAQ:KOOL) Balance Sheet Strong Enough To Weather A Storm?

Cesca Therapeutics Inc (NASDAQ:KOOL) is a small-cap stock with a market capitalization of US$29.90M. 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 Medical Equipment industry, in particular ones that run negative earnings, are more likely to be higher risk. So, understanding the company’s financial health becomes vital. I believe these basic checks tell most of the story you need to know. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into KOOL here.

How does KOOL’s operating cash flow stack up against its debt?

KOOL has built up its total debt levels in the last twelve months, from US$2.49M to US$3.50M , which comprises of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$3.62M , 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. For this article’s sake, I won’t be looking at this today, but you can assess some of KOOL’s operating efficiency ratios such as ROA here.

Does KOOL’s liquid assets cover its short-term commitments?

Looking at KOOL’s most recent US$4.52M liabilities, the company has been able to meet these obligations given the level of current assets of US$11.18M, with a current ratio of 2.47x. For Medical Equipment companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

NasdaqCM:KOOL Historical Debt Mar 22nd 18
NasdaqCM:KOOL Historical Debt Mar 22nd 18

Can KOOL service its debt comfortably?

With debt at 16.22% of equity, KOOL may be thought of as appropriately levered. This range is considered safe as KOOL is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with KOOL, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Next Steps:

KOOL’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. This is only a rough assessment of financial health, and I’m sure KOOL has company-specific issues impacting its capital structure decisions. You should continue to research Cesca Therapeutics to get a better picture of the stock by looking at: