Yahoo Finance Is Pond Technologies Holdings Inc (CVE:POND) A Financially Sound Company?
Investors are always looking for growth in small-cap stocks like Pond Technologies Holdings Inc (CVE:POND), with a market cap of CA$14m. However, an important fact which most ignore is: how financially healthy is the business? Since POND is loss-making right now, it’s vital to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into POND here.
How does POND’s operating cash flow stack up against its debt?
Over the past year, POND has reduced its debt from CA$5.2m to CA$3.9m , which includes long-term debt. With this debt payback, the current cash and short-term investment levels stands at CA$4.8m , ready to deploy 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 take a look at some of POND’s operating efficiency ratios such as ROA here.
Can POND pay its short-term liabilities?
With current liabilities at CA$4.6m, the company has been able to meet these commitments with a current assets level of CA$9.4m, leading to a 2.05x current account ratio. Usually, for Food companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does POND face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 53%, POND can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since POND is currently unprofitable, there’s a question of sustainability of its current operations. 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:
POND’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around POND’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure POND has company-specific issues impacting its capital structure decisions. You should continue to research Pond Technologies Holdings to get a better picture of the small-cap by looking at:
Historical Performance: What has POND’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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
