Investors are always looking for growth in small-cap stocks like Medicrea International SA (EPA:ALMED), with a market cap of €37.1m. However, an important fact which most ignore is: how financially healthy is the business? Medical Equipment companies, in particular ones that run negative earnings, are inclined towards being higher risk. So, understanding the company’s financial health becomes crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into ALMED here.
Does ALMED produce enough cash relative to debt?
ALMED has sustained its debt level by about €21.1m over the last 12 months made up of current and long term debt. At this stable level of debt, ALMED currently has €12.0m remaining in cash and short-term investments , ready to deploy 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 ALMED’s operating efficiency ratios such as ROA here.
Does ALMED’s liquid assets cover its short-term commitments?
Looking at ALMED’s most recent €11.8m liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.36x. Generally, for Medical Equipment companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is ALMED’s debt level acceptable?
With debt reaching 97.0% of equity, ALMED may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since ALMED is presently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
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At its current level of cash flow coverage, ALMED has room for improvement to better cushion for events which may require debt repayment. Though, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for ALMED’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Medicrea International to get a more holistic view of the stock by looking at: