Yahoo Finance Bionomics Limited (ASX:BNO): Time For A Financial Health Check
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Investors are always looking for growth in small-cap stocks like Bionomics Limited (ASX:BNO), with a market cap of AU$68m. However, an important fact which most ignore is: how financially healthy is the business? Given that BNO is not presently profitable, it’s vital to evaluate 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, these checks don't give you a full picture, so I suggest you dig deeper yourself into BNO here.
BNO’s Debt (And Cash Flows)
BNO's debt level has been constant at around AU$21m over the previous year which accounts for long term debt. At this stable level of debt, BNO currently has AU$28m remaining in cash and short-term investments to keep the business going. Its negative operating cash flow means calculating cash-to-debt wouldn't be useful. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of BNO’s operating efficiency ratios such as ROA here.
Can BNO pay its short-term liabilities?
With current liabilities at AU$13m, it appears that the company has been able to meet these obligations given the level of current assets of AU$33m, with a current ratio of 2.49x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Biotechs 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 BNO service its debt comfortably?
Since total debt levels exceed equity, BNO is a highly leveraged company. 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 BNO is currently loss-making, 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:
BNO’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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for BNO's financial health. Other important fundamentals need to be considered alongside. You should continue to research Bionomics to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for BNO’s future growth? Take a look at our free research report of analyst consensus for BNO’s outlook.
Historical Performance: What has BNO'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.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.
