Borqs Technologies Inc (NASDAQ:BRQS) is a small-cap stock with a market capitalization of US$151.82m. 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? Tech companies, especially ones that are currently loss-making, are inclined towards being higher risk. So, understanding the company's financial health becomes essential. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into BRQS here.
How much cash does BRQS generate through its operations?
BRQS's debt levels surged from US$12.18m to US$22.80m over the last 12 months , which is made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at US$3.03m 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. For this article’s sake, I won’t be looking at this today, but you can examine some of BRQS’s operating efficiency ratios such as ROA here.
Can BRQS meet its short-term obligations with the cash in hand?
Looking at BRQS’s most recent US$66.05m liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$90.93m, leading to a 1.38x current account ratio. Generally, for Tech companies, this is a reasonable ratio as there's enough of a cash buffer without holding too capital in low return investments.
Is BRQS’s debt level acceptable?BRQS is a relatively highly levered company with a debt-to-equity of 42.88%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since BRQS is presently unprofitable, 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.
BRQS’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. I admit this is a fairly basic analysis for BRQS's financial health. Other important fundamentals need to be considered alongside. You should continue to research Borqs Technologies to get a more holistic view of the stock by looking at:
- Historical Performance: What has BRQS'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.