Amedica Corporation (NASDAQ:AMDA) is a small-cap stock with a market capitalization of US$4.80M. 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? Companies operating in the Medical Equipment industry, in particular ones that run negative earnings, are more likely to be higher risk. So, understanding the company’s financial health becomes crucial. 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 AMDA here.
Does AMDA generate enough cash through operations?
AMDA has shrunken its total debt levels in the last twelve months, from US$7.01M to US$2.96M made up of predominantly near term debt. With this reduction in debt, the current cash and short-term investment levels stands at US$539.00K for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of AMDA’s operating efficiency ratios such as ROA here.
Can AMDA meet its short-term obligations with the cash in hand?
At the current liabilities level of US$8.27M liabilities, it appears that the company is not able to meet these obligations given the level of current assets of US$3.21M, with a current ratio of 0.39x below the prudent level of 3x.
Does AMDA face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 75.39%, AMDA can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since AMDA is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
AMDA’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Furthermore, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure AMDA has company-specific issues impacting its capital structure decisions. You should continue to research Amedica to get a better picture of the stock by looking at:
- Historical Performance: What has AMDA’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 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.