Aehr Test Systems (NASDAQ:AEHR) is a small-cap stock with a market capitalization of US$29m. 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 AEHR is loss-making right now, it’s crucial to assess 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, this is just a partial view of the stock, and I’d encourage you to dig deeper yourself into AEHR here.
Does AEHR Produce Much Cash Relative To Its Debt?
AEHR’s debt level has been constant at around US$6.1m over the previous year which accounts for long term debt. At this stable level of debt, AEHR’s cash and short-term investments stands at US$14m to keep the business going. Moving on, operating cash flow was negative over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can examine some of AEHR’s operating efficiency ratios such as ROA here.
Can AEHR meet its short-term obligations with the cash in hand?
Looking at AEHR’s US$12m in current liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.46x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Semiconductor companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is AEHR’s debt level acceptable?
AEHR’s level of debt is appropriate relative to its total equity, at 34%. This range is considered safe as AEHR is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Risk around debt is very low for AEHR, and the company also has the ability and headroom to increase debt if needed going forward.
AEHR’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for AEHR’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Aehr Test Systems to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AEHR’s future growth? Take a look at our free research report of analyst consensus for AEHR’s outlook.
- Historical Performance: What has AEHR’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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