Investors are always looking for growth in small-cap stocks like U.S. Physical Therapy, Inc. (NYSE:USPH), with a market cap of US$1.3b. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Healthcare industry, even ones that are profitable, are inclined towards being higher risk. Assessing first and foremost the financial health is essential. Here are few basic financial health checks you should consider before taking the plunge. Though, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into USPH here.
Does USPH produce enough cash relative to debt?
USPH has shrunken its total debt levels in the last twelve months, from US$63m to US$59m – this includes long-term debt. With this debt payback, the current cash and short-term investment levels stands at US$32m for investing into the business. Moreover, USPH has produced US$70m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 117%, signalling that USPH’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In USPH’s case, it is able to generate 1.17x cash from its debt capital.
Can USPH pay its short-term liabilities?
Looking at USPH’s US$47m in current liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.93x. Usually, for Healthcare 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.
Can USPH service its debt comfortably?
With a debt-to-equity ratio of 17%, USPH’s debt level may be seen as prudent. USPH is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether USPH is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In USPH’s, case, the ratio of 6.78x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving USPH ample headroom to grow its debt facilities.
USPH’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 exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure USPH has company-specific issues impacting its capital structure decisions. You should continue to research U.S. Physical Therapy to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for USPH’s future growth? Take a look at our free research report of analyst consensus for USPH’s outlook.
- Valuation: What is USPH 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 USPH 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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.