AAC Holdings Inc (NYSE:AAC): Time For A Financial Health Check
While small-cap stocks, such as AAC Holdings Inc (NYSE:AAC) with its market cap of US$244.27m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Healthcare companies, especially ones that are currently loss-making, are more likely to be higher risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into AAC here.
Does AAC produce enough cash relative to debt?
AAC has built up its total debt levels in the last twelve months, from US$189.11m to US$0 , which comprises of short- and long-term debt. With this growth in debt, AAC’s cash and short-term investments stands at US$13.82m , ready to deploy into the business. Additionally, AAC has generated US$19.29m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 8.55%, signalling that AAC’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable companies since metrics such as return on asset (ROA) requires a positive net income. In AAC’s case, it is able to generate 0.085x cash from its debt capital.
Does AAC’s liquid assets cover its short-term commitments?
Looking at AAC’s most recent US$60.57m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$111.94m, with a current ratio of 1.85x. Usually, for Healthcare companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does AAC face the risk of succumbing to its debt-load?
With total debt exceeding equities, AAC is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since AAC is presently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
AAC’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how AAC has been performing in the past. You should continue to research AAC Holdings to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AAC’s future growth? Take a look at our free research report of analyst consensus for AAC’s outlook.
Valuation: What is AAC worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether AAC is currently mispriced by the market.
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.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
