While small-cap stocks, such as ANI Pharmaceuticals Inc (NASDAQ:ANIP) with its market cap of US$655m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Pharmaceuticals industry, even ones that are profitable, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is vital. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into ANIP here.
Does ANIP produce enough cash relative to debt?
Over the past year, ANIP has ramped up its debt from US$151m to US$206m , which accounts for long term debt. With this increase in debt, ANIP’s cash and short-term investments stands at US$44m , ready to deploy into the business. Additionally, ANIP has generated US$56m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 27%, indicating that ANIP’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In ANIP’s case, it is able to generate 0.27x cash from its debt capital.
Can ANIP meet its short-term obligations with the cash in hand?
At the current liabilities level of US$47m, the company has been able to meet these commitments with a current assets level of US$157m, leading to a 3.34x current account ratio. However, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
Does ANIP face the risk of succumbing to its debt-load?
ANIP is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In ANIP’s case, the ratio of 2.9x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
Although ANIP’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. I admit this is a fairly basic analysis for ANIP’s financial health. Other important fundamentals need to be considered alongside. You should continue to research ANI Pharmaceuticals to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ANIP’s future growth? Take a look at our free research report of analyst consensus for ANIP’s outlook.
- Valuation: What is ANIP 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 ANIP is currently mispriced by the market.
- 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 past 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. For errors that warrant correction please contact the editor at email@example.com.