Investors are always looking for growth in small-cap stocks like Airgain Inc (NASDAQ:AIRG), with a market cap of US$90.14M. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Electronic industry, even ones that are profitable, are more likely to be higher risk. So, understanding the company’s financial health becomes essential. 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’d encourage you to dig deeper yourself into AIRG here.
How does AIRG’s operating cash flow stack up against its debt?
AIRG’s debt levels have fallen from US$4.35M to US$2.72M over the last 12 months , which comprises of short- and long-term debt. With this debt payback, AIRG currently has US$45.16M remaining in cash and short-term investments , ready to deploy into the business. Additionally, AIRG has produced US$4.67M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 171.55%, signalling that AIRG’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In AIRG’s case, it is able to generate 1.72x cash from its debt capital.
Does AIRG’s liquid assets cover its short-term commitments?
Looking at AIRG’s most recent US$9.24M liabilities, the company has been able to meet these commitments with a current assets level of US$50.81M, leading to a 5.5x current account ratio. However, a ratio greater than 3x may be considered as too high, as AIRG could be holding too much capital in a low-return investment environment.
Is AIRG’s debt level acceptable?
With a debt-to-equity ratio of 3.62%, AIRG’s debt level is relatively low. AIRG is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
AIRG has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure AIRG has company-specific issues impacting its capital structure decisions. You should continue to research Airgain to get a more holistic view of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for AIRG’s future growth? Take a look at our free research report of analyst consensus for AIRG’s outlook.
- 2. Valuation: What is AIRG 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 AIRG is currently mispriced by the market.
- 3. 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.