To stand out among competitors, a company has to be exceptional. Especially at the small cap level, where a company still has to prove that it has staying power to ride out the highs and lows. Well-tuned fiscal management is an essential component for any company that plans on long-term viability. With this in mind, we ran a scan today to find small cap companies that demonstrate fiscal prowess through profitability and high levels of liquidity. Cash reserves not only allow a company to buy time if the market stalls, but it can fund aggressive growth strategies. Use the data and graphs below to begin your own investigation of the small cap stocks that we have listed to see if they meet or exceed your expectations.
The Net Margin is a profitability metric that illustrates, by percentage, how much of every dollar earned gets turned into a bottom line profit. This is just one of many profitability metrics used by investors and analysts to better understand what the company is being left with at the end of the day. Generally, a firm that can expand its net profit margins over a period of time will see its stock price rise as well due to the trend of increasing profitability. Net Margin = Net Income/Total Revenue
Return on Assets (ROA) illustrates how much a company is generating in earnings from its assets alone. This metric gives investors a picture of how profitable the company is relative to the assets in current possession. As well, it lets investors see how efficient and effective management is at generating earnings from the company's assets. While most management teams can probably make money by throwing money at an issue, very few can make very large profits with little investment.
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 companies that have strong bottom line profitability (Net Margin [TTM]>10%)(ROA > 10%). From here, we then looked for companies with a large 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 will offer healthy returns? Use our list to help with your own analysis.
1) Silicon Motion Technology Corp. (SIMO)
|Return on Assets||30.23%|
Silicon Motion Technology Corporation, a fabless semiconductor company, designs, develops, and supplies a portfolio of multimedia data processing, storage, and transfer solutions primarily for consumer electronics applications. The company offers a range of microcontrollers for use in NAND flash memory storage products, including flash memory cards, USB flash drives, and embedded flash and solid state drives. The company is headquartered in Jhubei City, Taiwan.
2) Rentech Nitrogen Partners, L.P. (RNF)
|Return on Assets||54.43%|
Rentech Nitrogen Partners, L.P. engages in the production of natural gas-based nitrogen fertilizer and industrial products for agricultural uses. The company primarily offers ammonia, urea ammonium nitrate, urea granule and urea solution, nitric acid, and liquid carbon dioxide. The company was founded in 1965 and is based in Los Angeles, California. Rentech Nitrogen Partners, L.P. is a subsidiary of Rentech, Inc.
3) Zygo Corporation (ZIGO)
|Industry||Scientific & Technical Instruments|
|Return on Assets||24.39%|
Zygo Corporation designs, develops, and manufactures ultra-high precision measurement solutions, and optical sub-systems and components for original equipment manufacturers and end-user applications worldwide. The company was founded in 1970 and is headquartered in Middlefield, Connecticut.
4) The Medicines Company (MDCO)
|Industry||Drug Manufacturers - Other|
|Return on Assets||15.80%|
The Medicines Company, a pharmaceutical company, provides various medicines to hospitals for advancing the treatment of critical care patients worldwide. The company markets Angiomax, an intravenous direct thrombin inhibitor for use as an anticoagulant in combination with aspirin in patients with unstable angina undergoing percutaneous transluminal coronary angioplasty, and for use in patients undergoing percutaneous coronary intervention; and Cleviprex, an intravenous small molecule calcium channel blocker for the reduction of blood pressure, as well as to treat neurocritical care and cardiac surgery patients. The Medicines Company was founded in 1996 and is based in Parsippany, New Jersey.
*Company profiles were sourced from Google Finance and Yahoo Finance. Financial data was sourced from Finviz on 10/12/2012.