Yahoo Finance What does Identillect Technologies Corp’s (CVE:ID) Balance Sheet Tell Us About Its Future?
Investors are always looking for growth in small-cap stocks like Identillect Technologies Corp (TSXV:ID), with a market cap of CA$8.26M. However, an important fact which most ignore is: how financially healthy is the business? Software companies, in particular ones that run negative earnings, tend to be high risk. Assessing first and foremost the financial health is crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into ID here.
Does ID generate an acceptable amount of cash through operations?
Over the past year, ID has reduced its debt from US$848.26K to US$411.21K , which comprises of short- and long-term debt. With this reduction in debt, ID currently has US$861.03K remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. 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 ID’s operating efficiency ratios such as ROA here.
Can ID meet its short-term obligations with the cash in hand?
At the current liabilities level of US$766.95K liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$1.27M, leading to a 1.65x current account ratio. For Software companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is ID’s debt level acceptable?
With total debt exceeding equities, ID is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since ID is currently 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.
Next Steps:
ID’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for ID’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Identillect Technologies to get a better picture of the stock by looking at:
Historical Performance: What has ID’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 pass 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.
