ADOMANI Inc (NASDAQ:ADOM) is a small-cap stock with a market capitalization of $299.51M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Since ADOM is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I recommend you dig deeper yourself into ADOM here.
Does ADOM generate enough cash through operations?
ADOM has built up its total debt levels in the last twelve months, from $5.0M to $5.8M , which is made up of current and long term debt. With this growth in debt, ADOM currently has $0.9M remaining in cash and short-term investments , ready to deploy into the business. However, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of ADOM’s operating efficiency ratios such as ROA here.
Does ADOM’s liquid assets cover its short-term commitments?
At the current liabilities level of $6.1M liabilities, it seems that the business has not been able to meet these commitments with a current assets level of $2.7M, leading to a 0.45x current account ratio. which is under the appropriate industry ratio of 3x.
Is ADOM’s debt level acceptable?
With debt reaching 98.43% of equity, ADOM may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since ADOM is presently unprofitable, 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.
Are you a shareholder? ADOM’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. Given that ADOM’s financial situation may change. I suggest keeping abreast of market expectations for ADOM’s future growth on our free analysis platform.
Are you a potential investor? ADOM’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I encourage you to continue your research by taking a look at ADOM’s past performance analysis on our free platform to conclude on ADOM’s financial health.
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.