Sensus Healthcare Inc (NASDAQ:SRTS) is a small-cap stock with a market capitalization of US$107.1m. 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, 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 SRTS here.
How does SRTS’s operating cash flow stack up against its debt?
SRTS has built up its total debt levels in the last twelve months, from US$1.4m to US$4.2m – this includes both the current and long-term debt. With this growth in debt, SRTS currently has US$8.0m remaining in cash and short-term investments for investing 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of SRTS’s operating efficiency ratios such as ROA here.
Does SRTS’s liquid assets cover its short-term commitments?
At the current liabilities level of US$4.9m 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 3.8x. Though, a ratio greater than 3x may be considered as too high, as SRTS could be holding too much capital in a low-return investment environment.
Does SRTS face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 39.5%, SRTS’s debt level may be seen as prudent. SRTS is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for SRTS, and the company also has the ability and headroom to increase debt if needed going forward.
SRTS’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure SRTS has company-specific issues impacting its capital structure decisions. I recommend you continue to research Sensus Healthcare to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for SRTS’s future growth? Take a look at our free research report of analyst consensus for SRTS’s outlook.
- Historical Performance: What has SRTS’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 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.
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