US. Physical Therapy Inc. (NYSE:USPH) is a small-cap stock with a market capitalization of US$1.05B. 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? Companies operating in the Healthcare industry, even ones that are profitable, tend to be high risk. So, understanding the company’s financial health becomes essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into USPH here.
How does USPH’s operating cash flow stack up against its debt?
Over the past year, USPH has ramped up its debt from US$51.82M to US$60.77M , which is made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$21.93M , ready to deploy into the business. Additionally, USPH has produced cash from operations of US$56.53M over the same time period, leading to an operating cash to total debt ratio of 93.01%, indicating that USPH’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In USPH’s case, it is able to generate 0.93x cash from its debt capital.
Can USPH pay its short-term liabilities?
At the current liabilities level of US$39.55M 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 1.95x. Usually, for Healthcare companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is USPH’s debt level acceptable?
With debt at 19.67% of equity, USPH may be thought of as appropriately levered. This range is considered safe as USPH is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if USPH’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For USPH, the ratio of 2.64x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as USPH’s low interest coverage already puts the company at higher risk of default.
USPH’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for USPH’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research U.S. Physical Therapy to get a better picture of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for USPH’s future growth? Take a look at our free research report of analyst consensus for USPH’s outlook.
- 2. Valuation: What is USPH worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether USPH is currently mispriced by the market.
- 3. 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.