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Investors are always looking for growth in small-cap stocks like Clearside Biomedical, Inc. ( NASDAQ:CLSD ), with a market cap of US$40m. However, an important fact which most ignore is: how financially healthy is the business? Given that CLSD is not presently profitable, it’s crucial to assess the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company's balance sheet strength. Nevertheless, potential investors would need to take a closer look, and I suggest you dig deeper yourself into CLSD here .
Does CLSD Produce Much Cash Relative To Its Debt?
CLSD has built up its total debt levels in the last twelve months, from US$7.3m to US$12m – this includes long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$35m to keep the business going. We note it produced negative cash flow over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can take a look at some of CLSD’s operating efficiency ratios such as ROA here .
Can CLSD pay its short-term liabilities?
Looking at CLSD’s US$12m in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$35m, leading to a 3.04x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Having said that, a ratio greater than 3x may be considered high by some.
Does CLSD face the risk of succumbing to its debt-load?
With debt reaching 62% of equity, CLSD may be thought of as relatively highly levered. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. But since CLSD is presently 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.
Although CLSD’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around CLSD's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for CLSD's financial health. Other important fundamentals need to be considered alongside. You should continue to research Clearside Biomedical to get a better picture of the small-cap by looking at:
- Future Outlook : What are well-informed industry analysts predicting for CLSD’s future growth? Take a look at our free research report of analyst consensus for CLSD’s outlook.
- Historical Performance : What has CLSD'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 email@example.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.