While small-cap stocks, such as Youngevity International Inc (NASDAQ:YGYI) with its market cap of US$71.72m, 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 YGYI 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. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into YGYI here.
How does YGYI’s operating cash flow stack up against its debt?
YGYI’s debt levels surged from US$16.66m to US$21.20m over the last 12 months – this includes both the current and long-term debt. With this rise in debt, YGYI’s cash and short-term investments stands at US$673.00k for investing 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 examine some of YGYI’s operating efficiency ratios such as ROA here.
Can YGYI meet its short-term obligations with the cash in hand?
With current liabilities at US$37.72m, it appears that the company is not able to meet these obligations given the level of current assets of US$31.17m, with a current ratio of 0.83x below the prudent level of 3x.
Can YGYI service its debt comfortably?YGYI is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since YGYI is currently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
YGYI’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven’t considered other factors such as how YGYI has been performing in the past. You should continue to research Youngevity International to get a better picture of the stock by looking at:
- Valuation: What is YGYI 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 YGYI is currently mispriced by the market.
- Historical Performance: What has YGYI’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.