Yahoo Finance Invacare Corporation (NYSE:IVC): Time For A Financial Health Check
Investors are always looking for growth in small-cap stocks like Invacare Corporation (NYSE:IVC), with a market cap of US$161m. However, an important fact which most ignore is: how financially healthy is the business? 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 crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into IVC here.
Does IVC produce enough cash relative to debt?
Over the past year, IVC has maintained its debt levels at around US$252m – this includes long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$118m 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 examine some of IVC’s operating efficiency ratios such as ROA here.
Does IVC’s liquid assets cover its short-term commitments?
Looking at IVC’s US$200m in current liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.05x. Usually, for Medical Equipment companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Is IVC’s debt level acceptable?
IVC is a relatively highly levered company with a debt-to-equity of 68%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since IVC is currently unprofitable, there’s a question of sustainability of its current operations. 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:
Although IVC’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 IVC’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how IVC has been performing in the past. You should continue to research Invacare to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for IVC’s future growth? Take a look at our free research report of analyst consensus for IVC’s outlook.
Valuation: What is IVC worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether IVC is currently mispriced by the market.
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.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
