Investors are always looking for growth in small-cap stocks like National American University Holdings Inc (NASDAQ:NAUH), with a market cap of US$27.47M. However, an important fact which most ignore is: how financially healthy is the business? Given that NAUH is not presently profitable, it’s vital to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into NAUH here.
Does NAUH generate enough cash through operations?
Over the past year, NAUH has maintained its debt levels at around US$11.57M . At this constant level of debt, NAUH currently has US$16.16M remaining in cash and short-term investments for investing into the business. On top of this, NAUH has generated US$816.00K in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 7.05%, meaning that NAUH’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making companies since metrics such as return on asset (ROA) requires positive earnings. In NAUH’s case, it is able to generate 0.071x cash from its debt capital.
Can NAUH pay its short-term liabilities?
With current liabilities at US$12.21M, it seems that the business has been able to meet these obligations given the level of current assets of US$23.46M, with a current ratio of 1.92x. For Consumer Services companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does NAUH face the risk of succumbing to its debt-load?
NAUH is a relatively highly levered company with a debt-to-equity of 53.34%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since NAUH is presently unprofitable, 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.
At its current level of cash flow coverage, NAUH has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how NAUH has been performing in the past. I recommend you continue to research National American University Holdings to get a more holistic view of the stock by looking at the areas below. Just a heads up – to access some parts of the Simply Wall St research tool you might be asked to create a free account, but it takes just one click and the information they provide is definitely worth it in my opinion.
- 1. Historical Performance: What has NAUH’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 NAUH’s historicals for more clarity.
- 2. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore a 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.