While small-cap stocks, such as iCAD Inc (NASDAQ:ICAD) with its market cap of US$47m, 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 Healthcare Services industry, especially ones that are currently loss-making, are more likely to be higher risk. Assessing first and foremost the financial health is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into ICAD here.
Does ICAD produce enough cash relative to debt?
Over the past year, ICAD has maintained its debt levels at around US$6.1m made up of current and long term debt. At this current level of debt, ICAD currently has US$6.8m remaining in cash and short-term investments 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 assess some of ICAD’s operating efficiency ratios such as ROA here.
Does ICAD’s liquid assets cover its short-term commitments?
With current liabilities at US$12m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.39x. For Healthcare Services companies, this ratio is within a sensible range since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can ICAD service its debt comfortably?
With debt reaching 62% of equity, ICAD may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since ICAD is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
ICAD’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. 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 ICAD has company-specific issues impacting its capital structure decisions. I suggest you continue to research iCAD to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ICAD’s future growth? Take a look at our free research report of analyst consensus for ICAD’s outlook.
- Valuation: What is ICAD 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 ICAD 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 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 firstname.lastname@example.org.