While small-cap stocks, such as Aethlon Medical Inc (NASDAQ:AEMD) with its market cap of US$20m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Medical Equipment industry, especially ones that are currently loss-making, are inclined towards being higher risk. Assessing first and foremost the financial health is crucial. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I recommend you dig deeper yourself into AEMD here.
Does AEMD produce enough cash relative to debt?
AEMD has shrunken its total debt levels in the last twelve months, from US$1m to US$871k – this includes both the current and long-term debt. With this reduction in debt, AEMD currently has US$6m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of AEMD’s operating efficiency ratios such as ROA here.
Does AEMD’s liquid assets cover its short-term commitments?
At the current liabilities level of US$471k liabilities, the company has been able to meet these commitments with a current assets level of US$6m, leading to a 13.45x current account ratio. Having said that, anything above 3x may be considered excessive by some investors. They might argue AEMD is leaving too much capital in low-earning investments.
Can AEMD service its debt comfortably?
With a debt-to-equity ratio of 17%, AEMD’s debt level may be seen as prudent. This range is considered safe as AEMD is not taking on too much debt obligation, which may be constraining for future growth. AEMD’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.
AEMD’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, 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 AEMD has company-specific issues impacting its capital structure decisions. 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.
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.
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