How to Evaluate Net-Net Risk in Microcaps

Why it matters

Net-nets can look cheap but blow up on dilution or weak cash quality.

Quick checklist (4 steps)

1) Verify cash quality (no huge receivables; discount inventories if lumpy). 2) Check share changes over 4–8 quarters for dilution trends. 3) Compare cash vs total liabilities; avoid cash < 0.7× liabilities. 4) Make sure operating cash flow is not persistently negative.

Red flags to avoid

• Consecutive quarters of >5% share issuance.
• Rising short-term debt used to “pad” cash.
• Inventory spikes without revenue growth.

What to do next

• Re-run your screen with cash/liability filters.
• Read the latest 10-Q/10-K footnotes on share issuances.