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Investors are always looking for growth in small-cap stocks like Juniper Pharmaceuticals Inc (NASDAQ:JNP), with a market cap of US$91.03M. However, an important fact which most ignore is: how financially healthy is the business? Pharmaceuticals companies, in particular ones that run negative earnings, tend to be high risk. Assessing first and foremost the financial health is essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into JNP here.
Does JNP generate an acceptable amount of cash through operations?
Over the past year, JNP has ramped up its debt from US$2.41M to US$3.80M – this includes both the current and long-term debt. With this rise in debt, JNP’s cash and short-term investments stands at US$21.45M , ready to deploy into the business. On top of this, JNP has produced cash from operations of US$2.13M in the last twelve months, resulting in an operating cash to total debt ratio of 55.99%, signalling that JNP’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires a positive net income. In JNP’s case, it is able to generate 0.56x cash from its debt capital.
Does JNP’s liquid assets cover its short-term commitments?
Looking at JNP’s most recent US$16.34M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.2x. Generally, for Pharmaceuticals companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can JNP service its debt comfortably?
With a debt-to-equity ratio of 9.15%, JNP’s debt level is relatively low. JNP is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is virtually non-existent with JNP, and the company has plenty of headroom and ability to raise debt should it need to in the future.
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JNP has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure JNP has company-specific issues impacting its capital structure decisions. I suggest you continue to research Juniper Pharmaceuticals to get a better picture of the stock by looking at: