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Nexstim Plc (HLSE:NXTMH) is a small-cap stock with a market capitalization of €17.72M. 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, in particular ones that run negative earnings, tend to be high risk. Assessing first and foremost the financial health is vital. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into NXTMH here.
Does NXTMH generate an acceptable amount of cash through operations?
NXTMH’s debt level has been constant at around €3.72M over the previous year comprising of short- and long-term debt. At this current level of debt, NXTMH’s cash and short-term investments stands at €8.47M for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 assess some of NXTMH’s operating efficiency ratios such as ROA here.
Can NXTMH meet its short-term obligations with the cash in hand?
Looking at NXTMH’s most recent €1.79M liabilities, it appears that the company has been able to meet these commitments with a current assets level of €10.33M, leading to a 5.78x current account ratio. However, anything above 3x is considered high and could mean that NXTMH has too much idle capital in low-earning investments.
Can NXTMH service its debt comfortably?
NXTMH is a relatively highly levered company with a debt-to-equity of 67.45%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since NXTMH is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
NXTMH’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. This is only a rough assessment of financial health, and I’m sure NXTMH has company-specific issues impacting its capital structure decisions. You should continue to research Nexstim to get a better picture of the stock by looking at: