U.S. markets closed
  • S&P 500

    3,768.25
    -27.29 (-0.72%)
     
  • Dow 30

    30,814.26
    -177.26 (-0.57%)
     
  • Nasdaq

    12,998.50
    -114.14 (-0.87%)
     
  • Russell 2000

    2,123.20
    -32.15 (-1.49%)
     
  • Crude Oil

    52.04
    -1.53 (-2.86%)
     
  • Gold

    1,827.70
    -23.70 (-1.28%)
     
  • Silver

    24.83
    -0.97 (-3.77%)
     
  • EUR/USD

    1.2085
    -0.0071 (-0.58%)
     
  • 10-Yr Bond

    1.0970
    -0.0320 (-2.83%)
     
  • GBP/USD

    1.3583
    -0.0108 (-0.79%)
     
  • USD/JPY

    103.8710
    +0.0550 (+0.05%)
     
  • BTC-USD

    36,184.54
    -1,041.93 (-2.80%)
     
  • CMC Crypto 200

    701.93
    -33.21 (-4.52%)
     
  • FTSE 100

    6,735.71
    -66.25 (-0.97%)
     
  • Nikkei 225

    28,519.18
    -179.08 (-0.62%)
     

How Financially Strong Is EDAP TMS SA (NASDAQ:EDAP)?

While small-cap stocks, such as EDAP TMS SA (NASDAQ:EDAP) with its market cap of US$78m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Medical Equipment companies, especially ones that are currently loss-making, are more likely to be higher risk. So, understanding the company’s financial health becomes crucial. I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I recommend you dig deeper yourself into EDAP here.

Does EDAP produce enough cash relative to debt?

EDAP’s debt levels surged from €2m to €4m over the last 12 months – this includes both the current and long-term debt. With this increase in debt, EDAP’s cash and short-term investments stands at €17m , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 EDAP’s operating efficiency ratios such as ROA here.

Can EDAP pay its short-term liabilities?

Looking at EDAP’s most recent €16m liabilities, it appears that the company has been able to meet these commitments with a current assets level of €39m, leading to a 2.41x current account ratio. For Medical Equipment companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

NasdaqGM:EDAP Historical Debt October 19th 18
NasdaqGM:EDAP Historical Debt October 19th 18

Can EDAP service its debt comfortably?

With debt at 18% of equity, EDAP may be thought of as appropriately levered. This range is considered safe as EDAP is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Risk around debt is very low for EDAP, and the company also has the ability and headroom to increase debt if needed going forward.

Next Steps:

EDAP’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 proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure EDAP has company-specific issues impacting its capital structure decisions. I recommend you continue to research EDAP TMS to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for EDAP’s future growth? Take a look at our free research report of analyst consensus for EDAP’s outlook.

  2. Historical Performance: What has EDAP’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.

  3. 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 editorial-team@simplywallst.com.