Is Aggregated Micro Power Holdings plc’s (LON:AMPH) Balance Sheet A Threat To Its Future?

Investors are always looking for growth in small-cap stocks like Aggregated Micro Power Holdings plc (LON:AMPH), with a market cap of UK£55m. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into AMPH here.

Does AMPH produce enough cash relative to debt?

AMPH has built up its total debt levels in the last twelve months, from UK£9.7m to UK£11m , which includes long-term debt. With this growth in debt, AMPH currently has UK£531k remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of AMPH’s operating efficiency ratios such as ROA here.

Can AMPH pay its short-term liabilities?

At the current liabilities level of UK£17m, the company may not be able to easily meet these obligations given the level of current assets of UK£17m, with a current ratio of 0.95x.

AIM:AMPH Historical Debt, March 4th 2019
AIM:AMPH Historical Debt, March 4th 2019

Is AMPH’s debt level acceptable?

AMPH is a relatively highly levered company with a debt-to-equity of 78%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.

Next Steps:

Although AMPH’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. However, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for AMPH’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Aggregated Micro Power Holdings to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for AMPH’s future growth? Take a look at our free research report of analyst consensus for AMPH’s outlook.
  2. Valuation: What is AMPH worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether AMPH is currently mispriced by the market.
  3. 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 editorial-team@simplywallst.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.