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While small-cap stocks, such as Allscripts Healthcare Solutions, Inc. (NASDAQ:MDRX) with its market cap of US$1.7b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. We'll look at some basic checks that can form a snapshot the company’s financial strength. However, potential investors would need to take a closer look, and I suggest you dig deeper yourself into MDRX here.
MDRX’s Debt (And Cash Flows)
MDRX's debt levels have fallen from US$1.7b to US$906m over the last 12 months – this includes long-term debt. With this debt repayment, MDRX currently has US$137m remaining in cash and short-term investments , ready to be used for running the business. Moreover, MDRX has produced cash from operations of US$15m during the same period of time, leading to an operating cash to total debt ratio of 1.7%, signalling that MDRX’s debt is not covered by operating cash.
Does MDRX’s liquid assets cover its short-term commitments?
With current liabilities at US$800m, the company has been able to meet these commitments with a current assets level of US$834m, leading to a 1.04x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. For Healthcare Services companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.
Does MDRX face the risk of succumbing to its debt-load?
MDRX is a relatively highly levered company with a debt-to-equity of 62%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses.
MDRX’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around MDRX's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for MDRX's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Allscripts Healthcare Solutions to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for MDRX’s future growth? Take a look at our free research report of analyst consensus for MDRX’s outlook.
- Valuation: What is MDRX 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 MDRX 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.