While small-cap stocks, such as Wildflower Marijuana Inc (DB:RSP) with its market cap of €52.79M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since RSP is loss-making right now, it’s crucial to evaluate 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, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into RSP here.
Does RSP generate an acceptable amount of cash through operations?
RSP’s debt levels surged from CA$111.41K to CA$163.81K over the last 12 months . With this rise in debt, the current cash and short-term investment levels stands at CA$133.28K , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of RSP’s operating efficiency ratios such as ROA here.
Does RSP’s liquid assets cover its short-term commitments?
With current liabilities at CA$218.75K, the company has been able to meet these commitments with a current assets level of CA$605.28K, leading to a 2.77x current account ratio. Usually, for Personal Products companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is RSP’s debt level acceptable?
RSP’s level of debt is low relative to its total equity, at 9.33%. This range is considered safe as RSP is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is extremely low for RSP, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
Although RSP’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how RSP has been performing in the past. I recommend you continue to research Wildflower Marijuana to get a more holistic view of the stock by looking at: