Conformis, Inc. (NASDAQ:CFMS) is a small-cap stock with a market capitalization of US$158m. 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? Since CFMS is loss-making right now, it’s essential to assess the current state of its operations and pathway to profitability. Let’s work through some financial health checks you may wish to consider if you’re interested in this stock. However, this is just a partial view of the stock, and I recommend you dig deeper yourself into CFMS here.
CFMS’s Debt (And Cash Flows)
Over the past year, CFMS has reduced its debt from US$30m to US$15m , which includes long-term debt. With this reduction in debt, CFMS’s cash and short-term investments stands at US$24m , ready to be used for running the business. We note it produced negative cash flow over the last twelve months. 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 CFMS’s operating efficiency ratios such as ROA here.
Can CFMS meet its short-term obligations with the cash in hand?
At the current liabilities level of US$11m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.22x. The current ratio is calculated by dividing current assets by current liabilities. Having said that, a ratio above 3x may be considered excessive by some investors.
Is CFMS’s debt level acceptable?
With a debt-to-equity ratio of 41%, CFMS can be considered as an above-average leveraged company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. Though, since CFMS 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.
CFMS’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for CFMS’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Conformis to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CFMS’s future growth? Take a look at our free research report of analyst consensus for CFMS’s outlook.
- Historical Performance: What has CFMS’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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.