While small-cap stocks, such as Impinj Inc (NASDAQ:PI) with its market cap of US$468m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Semiconductor industry, especially ones that are currently loss-making, tend to be high risk. Evaluating financial health as part of your investment thesis is vital. 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 PI here.
How much cash does PI generate through its operations?
PI's debt levels surged from US$13m to US$25m over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, PI currently has US$55m remaining in cash and short-term investments , 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of PI’s operating efficiency ratios such as ROA here.
Does PI’s liquid assets cover its short-term commitments?
Looking at PI’s most recent US$23m liabilities, the company has been able to meet these commitments with a current assets level of US$125m, leading to a 5.49x current account ratio. Having said that, a ratio greater than 3x may be considered as quite high.
Does PI face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 25%, PI's debt level may be seen as prudent. PI is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for PI, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
Although PI’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for PI's financial health. Other important fundamentals need to be considered alongside. You should continue to research Impinj to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for PI’s future growth? Take a look at our free research report of analyst consensus for PI’s outlook.
- Historical Performance: What has PI'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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.