While small-cap stocks, such as AudioCodes Ltd (NASDAQ:AUDC) with its market cap of US$202.53M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Communications companies, even ones that are profitable, are more likely to be higher risk. Assessing first and foremost the financial health is vital. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, since I only look at basic financial figures, I recommend you dig deeper yourself into AUDC here.
How does AUDC’s operating cash flow stack up against its debt?
Over the past year, AUDC has reduced its debt from US$11.94M to US$8.76M , which is made up of current and long term debt. With this reduction in debt, AUDC’s cash and short-term investments stands at US$31.32M for investing into the business. On top of this, AUDC has produced US$17.77M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 202.89%, indicating that AUDC’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In AUDC’s case, it is able to generate 2.03x cash from its debt capital.
Does AUDC’s liquid assets cover its short-term commitments?
With current liabilities at US$45.36M, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.71x. Usually, for Communications companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is AUDC’s debt level acceptable?
AUDC’s level of debt is low relative to its total equity, at 9.48%. This range is considered safe as AUDC is not taking on too much debt obligation, which may be constraining for future growth.
AUDC has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure AUDC has company-specific issues impacting its capital structure decisions. I recommend you continue to research AudioCodes to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AUDC’s future growth? Take a look at our free research report of analyst consensus for AUDC’s outlook.
- Valuation: What is AUDC 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 AUDC 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.