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Aethlon Medical, Inc. (NASDAQ:AEMD) is a small-cap stock with a market capitalization of US$16m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Since AEMD is loss-making right now, it’s crucial to assess the current state of its operations and pathway to profitability. Let's work through some financial health checks you may wish to consider if you're interested in this stock. Nevertheless, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into AEMD here.
Does AEMD Produce Much Cash Relative To Its Debt?
Over the past year, AEMD has ramped up its debt from US$811k to US$932k – this includes long-term debt. With this increase in debt, AEMD currently has US$4.8m remaining in cash and short-term investments to keep the business going. Its negative operating cash flow means calculating cash-to-debt wouldn't be useful. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of AEMD’s operating efficiency ratios such as ROA here.
Can AEMD meet its short-term obligations with the cash in hand?
With current liabilities at US$1.8m, it appears that the company has been able to meet these commitments with a current assets level of US$4.9m, leading to a 2.73x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Medical Equipment companies, this is a suitable ratio since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is AEMD’s debt level acceptable?
AEMD’s level of debt is appropriate relative to its total equity, at 29%. AEMD is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors' risk associated with debt is very low with AEMD, and the company has plenty of headroom and ability to raise debt should it need to in the future.
AEMD’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven't considered other factors such as how AEMD has been performing in the past. I recommend you continue to research Aethlon Medical to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AEMD’s future growth? Take a look at our free research report of analyst consensus for AEMD’s outlook.
- Historical Performance: What has AEMD's returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
- 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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If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.