Aqua Metals Inc (AQMS): Time For A Financial Health Check
Investors are always looking for growth in small-cap stocks like Aqua Metals Inc (NASDAQ:AQMS), with a market cap of USD $77.44M. However, an important fact which most ignore is: how financially healthy is the company? Why is it important? A major downturn in the energy industry has resulted in over 150 companies going bankrupt and has put more than 100 on the verge of a collapse, primarily due to excessive debt. Thus, it becomes utmost important for an investor to test a company’s resilience for such contingencies. In simple terms, I believe these three small calculations tell most of the story you need to know. Check out our latest analysis for Aqua Metals
Does AQMS generate enough cash through operations?
There are many headwinds that come unannounced, such as natural disasters and political turmoil, which can challenge a small business and its ability to adapt and recover. Furthermore, failure to service debt can hurt its reputation, making funding expensive in the future. Fortunately, we can test the company’s capacity to pay back its debtholders without summoning any catastrophes by looking at how much cash it generates from its current operations. AQMS’s recent operating cash flow was -1.66 times its debt within the past year. This means what AQMS can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at AQMS’s operations at this point in time.
Does AQMS’s liquid assets cover its short-term commitments?
In addition to debtholders, a company must be able to pay its bills and salaries to keep the business running. In times of adverse events, AQMS may need to liquidate its short-term assets to pay these immediate obligations. We test for AQMS’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that AQMS is able to meet its upcoming commitments with its cash and other short-term assets, which lessens our concerns for the company’s business operations should any unfavourable circumstances arise.
Does AQMS face the risk of succumbing to its debt-load?
While ideally the debt-to equity ratio of a financially healthy company should be less than 40%, several factors such as industry life-cycle and economic conditions can result in a company raising a significant amount of debt. AQMS’s debt-to-equity ratio stands at 17.81%, which indicates that its debt is at an acceptable level.
Next Steps:
Are you a shareholder? Although AQMS’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Given that its financial position may change. You should always be keeping abreast of market expectations for AQMS’s future growth on our free analysis platform.
Are you a potential investor? AQMS’s low-debt position gives it headroom for future growth funding in the future. Furthermore, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. To gain more confidence in the stock, you need to also examine the company’s track record. You should continue your analysis by taking a look at AQMS’s past performance analysis on our free platform to conclude on AQMS’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.
