When you perform a general scan of companies at the small-cap level, most investors are looking for traits that lead to growth. Some indicators of a healthy company are obvious, like profitability. But that only scratches the surface. Most investors want to know about strategic partnerships, plans for growth, fiscal oversight, pipelines for future funding and management. To reveal small-cap companies that are worth that additional research, we ran a scan today to find those that have the positive attributes of high liquidity and minimal debt. Generally, these qualities point to companies that have masterful fiscal oversight that will lay a strong foundation for a company to expand. To learn more about what we uncovered, see the list below to begin your own analysis of these small-cap stocks.
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 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 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 looked for businesses that have maintained a sound capital structure (D/E Ratio<.1). From here, we then looked for companies that have maintained a sound long-term capital structure (Long Term D/E Ratio<.1). We then looked for businesses that have a substantial amount of cash on hand (Current Ratio>2) (Quick Ratio>2). We did not screen out any sectors.
Do you think these small-cap stocks have a positive future in store? Use this list as a starting-off point for your own analysis.
1) K12, Inc. (LRN)
|Industry||Education & Training Services|
|Long Term Debt/Equity Ratio||0.03|
K12 Inc., a technology-based education company, provides proprietary curriculum, software systems, and educational services for individualized learning for students in kindergarten through 12th grade (K-12) primarily in the United States. The company's products include K12 Curriculum, which consists of online lessons, learning kits, and lesson guides; online school platform, a Web-based software platform that provides access to its online lessons, lesson planning, and scheduling tools, as well as its progress tracking tool and assessment tracking tools; and student administration management system, a proprietary student information system that stores student-specific data and is used for various functions, including enrolling students in courses, assigning progress marks and grades, tracking student demographic data, and generating student transcripts.
It also offers student community tools that foster communication and interaction among families and school personnel. In addition, the company offers a range of academic support services, including teachers and related services, gifted and special education services, supporting at-risk learners, and student support services; and management services, such as turnkey services, compliance and tracking services, financial support services, and human resources support services, as well as facility, operations, and technology support services. It distributes its products and services to public schools, hybrid schools, traditional schools, school districts, private schools, and public charter schools, as well as directly to consumers. K12 Inc. was founded in 2000 and its headquarters is in Herndon, Virginia.
2) Fluidigm Corporation (FLDM)
|Industry||Scientific & Technical Instruments|
|Long Term Debt/Equity Ratio||0.00|
Fluidigm Corporation develops, manufactures, and markets microfluidic systems for the life science, agricultural biotechnology (Ag-Bio), molecular diagnostics, and other markets. The company's proprietary microfluidic systems comprise instruments and consumables, including chips, assays, and other reagents. Its technology enables customers to perform and measure various biochemical reactions on samples smaller than the content of a single cell by utilizing minute volumes of reagents and samples; and rapid preparation of multiple samples in parallel for next generation DNA sequencing.
The company's products include the BioMark HD system that performs high-throughput gene expression analysis, single-cell analysis, single nucleotide polymorphism genotyping, and digital polymerase chain reaction using Fluidigm DELTAgene and SNPtype assays and other chemistries, such as TaqMan or EvaGreen; the EP1 system, which performs SNP genotyping and end point digital PCR using Fluidigm DELTAgene and SNPtype assays and other chemistries, such as TaqMan or EvaGreen; and the Access Array system that enables automated sample preparation, barcoding, and tagging of targeted resequencing libraries for next generation DNA sequencers. Its consumables comprise dynamic, digital, and access array chips; DELTAgene and SNPtype reagent kits; and access array target-specific primers.
The company serves academic institutions, diagnostic laboratories, pharmaceutical and biotechnology companies, and Ag-Bio companies. Fluidigm Corporation distributes its microfluidic systems through direct sales force and support organizations in North America, Europe, and the Asia-Pacific; and through distributors or sales agents in Europe, Latin America, the Middle East, and the Asia-Pacific. The company was formerly known as Mycometrix Corporation and changed its name to Fluidigm Corporation in April 2001. Fluidigm Corporation was founded in 1999 and its headquarters is in South San Francisco, California.
3) Plantronics, Inc. (PLT)
|Industry||Processing Systems & Products|
|Long Term Debt/Equity Ratio||0.08|
Plantronics, Inc., together with its subsidiaries, engages in the design, manufacture and marketing of communications headsets, telephone headset systems, and accessories for the business and consumer markets under the Plantronics brand worldwide. It also offers specialty products, such as telephones for the hearing impaired, and other related products for people with special communication needs under the Clarity brand. The company designs its products for markets and applications, including offices, contact centers, mobile phones and smart phones, computer and gaming, residential, and other specialty applications. It sells its products through a network of distributors, retailers, wireless carriers, original equipment manufacturers, and telephony service providers. The company was founded in 1961 and its headquarters is in Santa Cruz, California.
Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 09/17/2012.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.