iCAD Inc (NASDAQ:ICAD) is a small-cap stock with a market capitalization of US$62.32M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Healthcare Services companies, 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. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into ICAD here.
Does ICAD generate an acceptable amount of cash through operations?
ICAD has built up its total debt levels in the last twelve months, from US$86.00K to US$5.98M , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at US$9.39M , 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 assess some of ICAD’s operating efficiency ratios such as ROA here.
Can ICAD meet its short-term obligations with the cash in hand?
At the current liabilities level of US$12.07M liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.76x. Generally, for Healthcare Services companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can ICAD service its debt comfortably?
With debt reaching 41.85% of equity, ICAD may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since ICAD is presently loss-making, sustainability of its current state of operations becomes a concern. 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 debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how ICAD has been performing in the past. I recommend you continue to research iCAD to get a more holistic view 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.
- Historical Performance: What has ICAD’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 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.