While small-cap stocks, such as HTG Molecular Diagnostics, Inc. (NASDAQ:HTGM) with its market cap of US$74m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that HTGM is not presently profitable, it’s crucial to evaluate the current state of its operations and pathway to profitability. Let's work through some financial health checks you may wish to consider if you're interested in this stock. However, this is not a comprehensive overview, so I suggest you dig deeper yourself into HTGM here.
Does HTGM Produce Much Cash Relative To Its Debt?
HTGM has built up its total debt levels in the last twelve months, from US$8.8m to US$9.7m , which accounts for long term debt. With this increase in debt, HTGM's cash and short-term investments stands at US$31m to keep the business going. We note it produced negative cash flow over the last twelve months. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of HTGM’s operating efficiency ratios such as ROA here.
Can HTGM meet its short-term obligations with the cash in hand?
With current liabilities at US$7.0m, it appears that the company has been able to meet these commitments with a current assets level of US$38m, leading to a 5.42x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, many consider a ratio above 3x to be high.
Is HTGM’s debt level acceptable?
HTGM is a relatively highly levered company with a debt-to-equity of 46%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. Though, since HTGM is presently unprofitable, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although HTGM’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven't considered other factors such as how HTGM has been performing in the past. I suggest you continue to research HTG Molecular Diagnostics to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HTGM’s future growth? Take a look at our free research report of analyst consensus for HTGM’s outlook.
- Historical Performance: What has HTGM'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.
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