Investors are always looking for growth in small-cap stocks like Aqua Metals, Inc. (NASDAQ:AQMS), with a market cap of US$132m. However, an important fact which most ignore is: how financially healthy is the business? Since AQMS is loss-making right now, it’s crucial to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I recommend you dig deeper yourself into AQMS here.
How does AQMS’s operating cash flow stack up against its debt?
Over the past year, AQMS has ramped up its debt from US$10m to US$12m , which includes long-term debt. With this rise in debt, AQMS currently has US$29m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can examine some of AQMS’s operating efficiency ratios such as ROA here.
Does AQMS’s liquid assets cover its short-term commitments?
At the current liabilities level of US$7.4m, the company has been able to meet these obligations given the level of current assets of US$31m, with a current ratio of 4.17x. However, a ratio above 3x may be considered excessive by some investors.
Is AQMS’s debt level acceptable?
AQMS’s level of debt is appropriate relative to its total equity, at 19%. AQMS is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. AQMS’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
AQMS’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for AQMS’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Aqua Metals to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AQMS’s future growth? Take a look at our free research report of analyst consensus for AQMS’s outlook.
- Valuation: What is AQMS 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 AQMS 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.
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