Investors are always looking for growth in small-cap stocks like Cardiovascular Systems Inc (NASDAQ:CSII), with a market cap of US$983.11M. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Medical Equipment industry, especially ones that are currently loss-making, tend to be high risk. Evaluating financial health as part of your investment thesis is essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, I know these factors are very high-level, so I recommend you dig deeper yourself into CSII here.
Does CSII generate enough cash through operations?
CSII has increased its debt level by about US$21.10M over the last 12 months , which is mainly comprised of near term debt. With this increase in debt, CSII currently has US$108.62M remaining in cash and short-term investments , ready to deploy into the business. Moreover, CSII has produced US$19.59M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 92.83%, meaning that CSII’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires positive earnings. In CSII’s case, it is able to generate 0.93x cash from its debt capital.
Can CSII pay its short-term liabilities?
At the current liabilities level of US$40.97M liabilities, the company has been able to meet these obligations given the level of current assets of US$159.06M, with a current ratio of 3.88x. Though, a ratio greater than 3x may be considered as too high, as CSII could be holding too much capital in a low-return investment environment.
Is CSII’s debt level acceptable?
CSII’s level of debt is appropriate relative to its total equity, at 16.67%. This range is considered safe as CSII is not taking on too much debt obligation, which may be constraining for future growth. CSII’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.
CSII 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. I admit this is a fairly basic analysis for CSII’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Cardiovascular Systems to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CSII’s future growth? Take a look at our free research report of analyst consensus for CSII’s outlook.
- Valuation: What is CSII 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 CSII 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 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.