Corindus Vascular Robotics Inc (NYSEMKT:CVRS) is a small-cap stock with a market capitalization of US$236m. 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? Medical Equipment companies, especially ones that are currently loss-making, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is vital. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into CVRS here.
How does CVRS’s operating cash flow stack up against its debt?
CVRS has built up its total debt levels in the last twelve months, from US$1m to US$12m , which comprises of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at US$34m 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 take a look at some of CVRS’s operating efficiency ratios such as ROA here.
Does CVRS’s liquid assets cover its short-term commitments?
With current liabilities at US$6m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 6.69x. Having said that, anything above 3x may be considered excessive by some investors. They might argue CVRS is leaving too much capital in low-earning investments.
Can CVRS service its debt comfortably?
With debt reaching 49% of equity, CVRS may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since CVRS is currently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
At its current level of cash flow coverage, CVRS has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how CVRS has been performing in the past. You should continue to research Corindus Vascular Robotics to get a more holistic view of the stock by looking at: