What does Issuer Direct Corporation's (NYSEMKT:ISDR) Balance Sheet Tell Us About Its Future?

Investors are always looking for growth in small-cap stocks like Issuer Direct Corporation (AMEX:ISDR), with a market cap of US$49.01M. However, an important fact which most ignore is: how financially healthy is the business? Internet companies, even ones that are profitable, tend to be high risk. Assessing first and foremost the financial health is essential. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into ISDR here.

Does ISDR generate an acceptable amount of cash through operations?

Over the past year, ISDR has borrowed debt capital of around US$858.00K made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at US$4.92M , ready to deploy into the business. Additionally, ISDR has generated cash from operations of US$2.51M over the same time period, resulting in an operating cash to total debt ratio of 292.77%, signalling that ISDR’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In ISDR’s case, it is able to generate 2.93x cash from its debt capital.

Can ISDR pay its short-term liabilities?

At the current liabilities level of US$2.52M liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$7.11M, leading to a 2.82x current account ratio. Usually, for Internet companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Does ISDR face the risk of succumbing to its debt-load?

ISDR’s level of debt is low relative to its total equity, at 6.49%. This range is considered safe as ISDR is not taking on too much debt obligation, which may be constraining for future growth. We can test if ISDR’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For ISDR, the ratio of 1014x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as ISDR’s high interest coverage is seen as responsible and safe practice.

Next Steps:

ISDR has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven't considered other factors such as how ISDR has been performing in the past. You should continue to research Issuer Direct to get a better picture of the stock by looking at:

• 1. Valuation: What is ISDR 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 ISDR is currently mispriced by the market.
• 2. Historical Performance: What has ISDR'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.
• 3. 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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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.