Oxford Immunotec Global PLC (NASDAQ:OXFD) is a small-cap stock with a market capitalization of US$435m. 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? Medical Equipment companies, especially ones that are currently loss-making, tend to be high risk. Evaluating financial health as part of your investment thesis is vital. Here are few basic financial health checks you should consider before taking the plunge. Though, I know these factors are very high-level, so I recommend you dig deeper yourself into OXFD here.
Does OXFD produce enough cash relative to debt?
Over the past year, OXFD has maintained its debt levels at around US$30m which accounts for long term debt. At this current level of debt, the current cash and short-term investment levels stands at US$70m for investing into the business. Additionally, OXFD has produced US$9.6m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 32%, meaning that OXFD’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making businesses since metrics such as return on asset (ROA) requires positive earnings. In OXFD’s case, it is able to generate 0.32x cash from its debt capital.
Does OXFD’s liquid assets cover its short-term commitments?
At the current liabilities level of US$53m, it seems that the business has been able to meet these commitments with a current assets level of US$118m, leading to a 2.23x current account ratio. Usually, for Medical Equipment 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.
Is OXFD’s debt level acceptable?
With debt reaching 42% of equity, OXFD 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 OXFD is presently loss-making, 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.
OXFD’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around OXFD’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure OXFD has company-specific issues impacting its capital structure decisions. You should continue to research Oxford Immunotec Global to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for OXFD’s future growth? Take a look at our free research report of analyst consensus for OXFD’s outlook.
- Historical Performance: What has OXFD’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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