Yahoo Finance Naturally Splendid Enterprises Ltd. (CVE:NSP): Time For A Financial Health Check
Want to participate in a short research study? Help shape the future of investing tools and receive a $20 prize!
While small-cap stocks, such as Naturally Splendid Enterprises Ltd. (CVE:NSP) with its market cap of CA$16m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that NSP is not presently profitable, it’s crucial to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, since I only look at basic financial figures, I recommend you dig deeper yourself into NSP here.
Does NSP produce enough cash relative to debt?
NSP’s debt levels have fallen from CA$809k to CA$635k over the last 12 months , which also accounts for long term debt. With this debt repayment, NSP currently has CA$161k 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. For this article’s sake, I won’t be looking at this today, but you can assess some of NSP’s operating efficiency ratios such as ROA here.
Can NSP pay its short-term liabilities?
With current liabilities at CA$1.3m, it seems that the business has been able to meet these commitments with a current assets level of CA$2.8m, leading to a 2.19x current account ratio. For Food companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is NSP’s debt level acceptable?
NSP’s level of debt is appropriate relative to its total equity, at 13%. NSP is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with NSP, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
NSP 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 exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how NSP has been performing in the past. You should continue to research Naturally Splendid Enterprises to get a more holistic view of the stock by looking at:
Historical Performance: What has NSP’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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
