Phunware Inc. (NASDAQ:PHUN) is a small-cap stock with a market capitalization of US$1.2b. 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? Since PHUN is loss-making right now, it’s crucial to understand the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company’s balance sheet strength. Nevertheless, potential investors would need to take a closer look, and I suggest you dig deeper yourself into PHUN here.
PHUN’s Debt (And Cash Flows)
Over the past year, PHUN has ramped up its debt from US$1.8m to US$4.4m , which is mainly comprised of near term debt. With this growth in debt, PHUN’s cash and short-term investments stands at US$844k to keep the business going. We note it produced negative cash flow over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can examine some of PHUN’s operating efficiency ratios such as ROA here.
Can PHUN pay its short-term liabilities?
Looking at PHUN’s US$20m in current liabilities, it seems that the business may not have an easy time meeting these commitments with a current assets level of US$4.7m, leading to a current ratio of 0.24x. The current ratio is calculated by dividing current assets by current liabilities.
Does PHUN face the risk of succumbing to its debt-load?
With debt at 40% of equity, PHUN may be thought of as appropriately levered. This range is considered safe as PHUN is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. PHUN’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
PHUN’s debt level is appropriate for a company its size. Furthermore, it is able to generate sufficient cash flow coverage, meaning it is able to put its debt in good use. Though its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure PHUN has company-specific issues impacting its capital structure decisions. You should continue to research Phunware to get a more holistic view of the stock by looking at:
- Historical Performance: What has PHUN’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.
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