While small-cap stocks, such as Aethlon Medical Inc (NASDAQ:AEMD) with its market cap of USD $14.62M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Healthcare Equipment and Supplies companies, especially ones that are currently loss-making, tend to be high risk. So, understanding the company’s financial health becomes vital. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I recommend dig deeper yourself into AEMD here.
Does AEMD generate enough cash through operations?
AEMD has sustained its debt level by about $1M over the last 12 months made up of current and long term debt. At this stable level of debt, the current cash and short-term investment levels stands at $2M for investing into the business. However, 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 examine some of AEMD’s operating efficiency ratios such as ROA here.
Does AEMD’s liquid assets cover its short-term commitments?
With current liabilities at $1M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.61x. Usually, for healthcare equipment and supplies companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does AEMD face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, AEMD is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since AEMD 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.
Are you a shareholder? At its current level of cash flow coverage, AEMD has room for improvement to better cushion for events which may require debt repayment. However, its high liquidity means the company should continue to operate smoothly in the case of adverse events. Given that AEMD’s financial situation may change. I recommend researching market expectations for AEMD’s future growth on our free analysis platform.
Are you a potential investor? With a high level of debt on its balance sheet, AEMD could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for AEMD to increase its operational efficiency. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. As a following step, you should take a look at AEMD’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.
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.