While small-cap stocks, such as Fluidigm Corporation (NASDAQ:FLDM) with its market cap of US$220.27m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Life Sciences companies, in particular ones that run negative earnings, tend to be high risk. Evaluating financial health as part of your investment thesis is essential. Here are few basic financial health checks you should consider before taking the plunge. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into FLDM here.
Does FLDM produce enough cash relative to debt?
Over the past year, FLDM has reduced its debt from US$195.02m to US$164.16m , which comprises of short- and long-term debt. With this debt payback, the current cash and short-term investment levels stands at US$47.25m , 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 take a look at some of FLDM’s operating efficiency ratios such as ROA here.
Can FLDM pay its short-term liabilities?
At the current liabilities level of US$33.70m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$81.00m, with a current ratio of 2.4x. For Life Sciences companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Is FLDM’s debt level acceptable?Since total debt levels have outpaced equities, FLDM is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since FLDM is currently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
FLDM’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 FLDM has company-specific issues impacting its capital structure decisions. I suggest you continue to research Fluidigm to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for FLDM’s future growth? Take a look at our free research report of analyst consensus for FLDM’s outlook.
- Historical Performance: What has FLDM’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.