Yahoo Finance Is Corero Network Security plc’s (LON:CNS) Balance Sheet A Threat To Its Future?
While small-cap stocks, such as Corero Network Security plc (LON:CNS) with its market cap of UK£34m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that CNS is not presently profitable, it’s vital to understand the current state of its operations and pathway to profitability. We’ll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, these checks don’t give you a full picture, so I’d encourage you to dig deeper yourself into CNS here.
Does CNS Produce Much Cash Relative To Its Debt?
Over the past year, CNS has borrowed debt capital of around US$4.0m – which includes long-term debt. With this ramp up in debt, CNS’s cash and short-term investments stands at US$9.0m , ready to be used for running the business. Moving on, operating cash flow was negative over the last twelve months. 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 CNS’s operating efficiency ratios such as ROA here.
Can CNS pay its short-term liabilities?
Looking at CNS’s US$5.4m in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$12m, leading to a 2.29x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Software companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can CNS service its debt comfortably?
With a debt-to-equity ratio of 20%, CNS’s debt level may be seen as prudent. This range is considered safe as CNS is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. CNS’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
CNS’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure CNS has company-specific issues impacting its capital structure decisions. You should continue to research Corero Network Security to get a better picture of the stock by looking at:
Historical Performance: What has CNS’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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