Investors are always looking for growth in small-cap stocks like TransEnterix Inc (NYSEMKT:TRXC), with a market cap of US$1.36b. 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. Assessing first and foremost the financial health is crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into TRXC here.
Does TRXC produce enough cash relative to debt?
Over the past year, TRXC has ramped up its debt from US$12.9m to US$19.0m , which is made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at US$97.7m , 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. 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 TRXC’s operating efficiency ratios such as ROA here.
Can TRXC pay its short-term liabilities?
At the current liabilities level of US$16.0m liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$118.3m, leading to a 7.39x current account ratio. Though, anything above 3x is considered high and could mean that TRXC has too much idle capital in low-earning investments.
Can TRXC service its debt comfortably?
With debt at 11.4% of equity, TRXC may be thought of as appropriately levered. This range is considered safe as TRXC is not taking on too much debt obligation, which may be constraining for future growth. Investors’ risk associated with debt is very low with TRXC, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Although TRXC’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure TRXC has company-specific issues impacting its capital structure decisions. You should continue to research TransEnterix to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for TRXC’s future growth? Take a look at our free research report of analyst consensus for TRXC’s outlook.
- Historical Performance: What has TRXC’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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