Investors are always looking for growth in small-cap stocks like Almost Family Inc (NASDAQ:AFAM), with a market cap of US$768.90M. However, an important fact which most ignore is: how financially healthy is the business? Healthcare companies, even ones that are profitable, tend to be high risk. Evaluating financial health as part of your investment thesis is essential. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I suggest you dig deeper yourself into AFAM here.
Does AFAM generate an acceptable amount of cash through operations?
AFAM’s debt levels have fallen from US$274.96M to US$113.02M over the last 12 months , which comprises of short- and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at US$11.31M , ready to deploy into the business. On top of this, AFAM has generated US$30.53M in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 27.01%, meaning that AFAM’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In AFAM’s case, it is able to generate 0.27x cash from its debt capital.
Can AFAM meet its short-term obligations with the cash in hand?
At the current liabilities level of US$77.19M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$151.68M, with a current ratio of 1.97x. 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.
Can AFAM service its debt comfortably?
With debt at 22.31% of equity, AFAM may be thought of as appropriately levered. AFAM is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if AFAM’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For AFAM, the ratio of 3.95x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
AFAM has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for AFAM’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Almost Family to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AFAM’s future growth? Take a look at our free research report of analyst consensus for AFAM’s outlook.
- Valuation: What is AFAM 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 AFAM 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.