While small-cap stocks, such as OncoCyte Corporation (AMEX:OCX) with its market cap of USD $183.32M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. The significance of doing due diligence on a company’s financial strength stems from the fact that over 20,000 companies go bankrupt in every quarter in the US alone. Thus, it becomes utmost important for an investor to test a company’s resilience for such contingencies. In simple terms, I believe these three small calculations tell most of the story you need to know. Check out our latest analysis for OncoCyte

Does OCX generate enough cash through operations?

Unxpected adverse events, such as natural disasters and wars, can be a true test of a company’s capacity to meet its obligations. These adverse events bring devastation and yet does not absolve the company from its debt. We can test the impact of these adverse events by looking at whether cash from its current operations can pay back its current debt obligations. OCX’s recent operating cash flow was -3.82 times its debt within the past year. This means what OCX can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at OCX’s operations at this point in time.

Does OCX’s liquid assets cover its short-term commitments?

What about its other commitments such as payments to suppliers and salaries to its employees? As cash flow from operation is hindered by adverse events, OCX may need to liquidate its short-term assets to meet these upcoming payments. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that OCX is able to meet its upcoming commitments with its cash and other short-term assets, which lessens our concerns for the company’s business operations should any unfavourable circumstances arise.

Can OCX service its debt comfortably?

Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. In the case of OCX, the debt-to-equity ratio is 46.92%, which means, while the company’s debt could pose a problem for its earnings stability, it is not at an alarmingly high level yet.

Next Steps:

Are you a shareholder? OCX’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Given that OCX’s financial situation may change. I recommend keeping abreast of market expectations for OCX’s future growth on our free analysis platform.