4 Cash Positive Small Cap Stocks Keeping Debt To A Minimum

by: ZetaKap

When considering investing in a stock, you want the short and the long term picture. A company may be looking great for the near future, but if they don't have money in the bank to cover those unforeseen expenses, the business may find itself slowing down. Likewise, a company does not want to fund all of its growth by borrowing against its assets. It can catch up with the company in the long run. Assets can depreciate or if profits plummet, then it can be challenging to climb out of debt. A well positioned company, for the short and long view, are those that are liquid and are not overly leveraged. With this in mind, we came up with a list of small cap stocks with those traits. The parameters of low debt and cash reserves are particularly important for companies at the small cap level. Take a look at our findings below to see if any of these stocks meet your standards.

The Long Term Debt/Equity Ratio is a variation of the traditional debt-to-equity ratio; this value computes the proportion of a company's long-term debt compared to its available capital. By using this ratio, investors can identify the amount of leverage utilized by a specific company and compare it to others to help analyze the company's risk exposure. Generally, companies that finance a greater portion of their capital via debt are considered riskier than those with lower leverage ratios.

The Debt/Equity Ratio illustrates how aggressively a company is financing its growth via debt. The more debt financing that is used in a capital structure, the more volatile earnings can become due to the additional interest expense. Should a company's potentially enhanced earnings fail to exceed the cost associated with debt financing over time, this can lead the company toward substantial trouble.

The Current ratio is a liquidity ratio used to determine a company's financial health. The metric illustrates how easily a firm can pay back its short obligations all at once through current assets. A company that has a current ratio of one or less is generally a liquidity red flag. Now this doesn't mean the company will go bankrupt tomorrow, but it also doesn't bode well for the company, and may indicate that it could have an issue paying back upcoming obligations.

The Quick ratio measures a company's ability to use its cash or assets to extinguish its current liabilities immediately. Quick assets include assets that presumably can be converted to cash at close to their book values. A company with a Quick Ratio of less than 1 cannot currently pay back its current liabilities. The quick ratio is more conservative than the Current Ratio because it excludes inventory from current assets, since some companies have difficulty turning their inventory into cash. If short-term obligations need to be paid off immediately, sometimes the current ratio would overestimate a company's short-term financial strength. In general, the higher the ratio, the greater the company's liquidity (i.e., the better able to meet current obligations using liquid assets).

We first looked for small cap stocks. We then screened for businesses that operate with little to no long term debt (Long Term D/E Ratio<.1). We then screened for businesses that have maintained a sound capital structure (D/E Ratio<.1). We next screened for businesses that have strong liquidity (Current Ratio>2)(Quick Ratio>2). We did not screen out any sectors.

Do you think these small-cap stocks are worth more than the market currently says? Use our list to help with your own analysis.

1) Tanzanian Royalty Exploration Corp. (NYSEMKT:TRX)

Sector Basic Materials
Industry Gold
Market Cap $461.11M
Beta 0.93

TRX stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.04
Debt/Equity Ratio 0.04
Current Ratio 29.43
Quick Ratio 29.09
Short Interest 9.96%

Tanzanian Royalty Exploration Corporation, an exploration stage company, engages in the acquisition, financing, exploration, and development of mineral properties. The company primarily explores for gold or other precious metals. It holds a 55% interest in the Buckreef Project located in Tanzania. The company was formerly known as Tan Range Exploration Corporation and changed its name to Tanzanian Royalty Exploration Corporation in February 2006. Tanzanian Royalty Exploration Corporation was founded in 1990 and is based in South Surrey, Canada.

2) Solazyme, Inc. (SZYM)

Sector Basic Materials
Industry Chemicals - Major Diversified
Market Cap $790.48M
Beta -

SZYM stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.04
Debt/Equity Ratio 0.08
Current Ratio 9.87
Quick Ratio 9.64
Short Interest 12.17%

Solazyme, Inc. engages in the production of renewable oil with a focus on chemicals and fuels, nutrition, and skin and personal care markets. The company's proprietary technology transforms a range of plant-based sugars into oils. Its renewable products could replace or enhance oils derived from petroleum, plants, and animal fats. The company's industrial biotechnology platform harnesses the prolific oil-producing capability of microalgae. Its biotechnology platform also helps in the production of bioproducts, which are made from the protein, fiber, and other compounds produced by microalgae. Solazyme, Inc. utilizes industrial fermentation equipment to scale and accelerate microalgae's natural oil production time to a few days. It focuses on selling renewable oil as drop-in replacements for marine, motor vehicle, and jet fuels, as well as replacements for chemicals that are traditionally derived from petroleum or other conventional oils. The company also develops microalgae-based food ingredients, including oils and powders that enhance the nutritional profile and functionality of food products; and a portfolio of microalgae-based products, such as Alguronic Acid for skin care. In addition, it offers Algenist, which is an anti-aging skincare product; and develops algal oils as replacements for the essential oils used in skin and personal care products. The company was founded in 2003 and is headquartered in South San Francisco, California.

3) Medifast Inc. (NYSE:MED)

Sector Services
Industry Specialty Retail, Other
Market Cap $437.64M
Beta 1.88

MED stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.05
Debt/Equity Ratio 0.06
Current Ratio 2.59
Quick Ratio 2.06
Short Interest 14.55%

Medifast, Inc., through its subsidiaries, engages in the production, distribution, and sale of weight management and disease management products, and other consumable health and diet products in the United States. The company's product lines include weight and disease management, meal replacement, and vitamins. It also operates weight control centers that offer Medifast programs for weight loss and maintenance, customized patient counseling, and Inbody composition analysis. The company markets its products under the Medifast and Essential brand names, including shakes, appetite suppression shakes, diabetics shakes, joint health shakes, calorie burn drinks, calorie burn flavor infusers, antioxidant shakes, antioxidant flavor infusers, bars, crunch bars, blends, soups, chili, oatmeal, pudding, eggs, softbakes, hot cocoa, cappuccino, chai latte, iced teas, fruit drinks, pretzels, puffs, brownie, pancakes, soy crisps, crackers, Omega 3, and digestive and sleep health products. Medifast, Inc. sells its products through various channels of distribution comprising the Internet, call center, independent health advisors, medical professionals, weight loss clinics, and direct consumer marketing supported through the phone and Internet; Take Shape for Life, a physician led network of independent health coaches; and weight control centers. The company was founded in 1980 and is headquartered in Owings Mills, Maryland.

4) WMS Industries Inc. (NYSE:WMS-OLD)

Sector Consumer Goods
Industry Recreational Goods, Other
Market Cap $886.45M
Beta 1.62

WMS stock chart

Key Metrics

Long Term Debt/Equity Ratio 0.07
Debt/Equity Ratio 0.07
Current Ratio 2.65
Quick Ratio 2.34
Short Interest 11.05%

WMS Industries Inc., through its subsidiaries, engages in the design, manufacture, and distribution of games, video and mechanical reel-spinning gaming machines, and video lottery terminals (VLTs) for the legalized gaming industry worldwide. The company provides video gaming machines and mechanical reel gaming machines under the Bluebird, Bluebird2, Bluebird xD, Twinstar, and Helios brands. It also sells replacement parts; conversion kits, including game, hardware, or operating system conversions; and used gaming machines. In addition, the company licenses its gaming themes and other intellectual property to third parties; and leases gaming machines and VLTs to casinos and other licensed gaming machine operators. Further, it engages in gaming operations activities that include providing participation games, such as wide-area progressive participation games under the MONOPOLY GRAND HOTEL, MONOPOLY Big Event, MONOPOLY Around the Globe, THE WIZARD OF OZ, THE PRICE IS RIGHT, TIME MACHINE, and Reel em In Compete To Win brand names; local-area progressive participation games under the Jackpot Party Progressive, Life of Luxury Progressive, Hot Hot Super Jackpot Progressive, Goldfish Race for the Gold, Money to Burn Multiplying Progressive, and HAPPY DAYS; stand-alone participation games under the MONOPOLY and PRESS YOUR LUCK brands; casino-owned daily fee games; leased for-sale games; and Class II and centrally determined systems, as well as networked and online gaming services. The company, formerly known as Williams Electronics, Inc., was founded in 1943 and is headquartered in Waukegan, Illinois.

*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 08/27/2012.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. This article was prepared for ZetaKap Media by one of our full-time analysts. We did not receive compensation for this article (other than from Seeking Alpha), and we have no business relationship with any company whose stock is mentioned in this article.

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