While small-cap stocks, such as Nxt-ID Inc (NASDAQ:NXTD) with its market cap of US$46.99M, 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 Software industry, in particular ones that run negative earnings, are more likely to be higher risk. So, understanding the company’s financial health becomes vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into NXTD here.
How does NXTD’s operating cash flow stack up against its debt?
NXTD’s debt levels have fallen from US$15.01M to US$12.65M over the last 12 months , which is made up of current and long term debt. With this reduction in debt, NXTD’s cash and short-term investments stands at US$5.64M , ready to deploy 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. For this article’s sake, I won’t be looking at this today, but you can examine some of NXTD’s operating efficiency ratios such as ROA here.
Can NXTD meet its short-term obligations with the cash in hand?
Looking at NXTD’s most recent US$10.68M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.12x. Usually, for Software 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.
Can NXTD service its debt comfortably?
NXTD is a relatively highly levered company with a debt-to-equity of 60.42%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since NXTD is currently unprofitable, 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.
NXTD’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for NXTD’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Nxt-ID to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NXTD’s future growth? Take a look at our free research report of analyst consensus for NXTD’s outlook.
- Historical Performance: What has NXTD’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 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.