Aggregated Micro Power Holdings plc (LON:AMPH) is a small-cap stock with a market capitalization of UK£54m. 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? Evaluating financial health as part of your investment thesis is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into AMPH here.
How much cash does AMPH generate through its operations?
AMPH’s debt levels surged from UK£10m to UK£11m over the last 12 months , which comprises of short- and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at UK£4m for investing into the business. Moreover, AMPH has generated UK£3m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 27%, indicating that AMPH’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In AMPH’s case, it is able to generate 0.27x cash from its debt capital.
Does AMPH’s liquid assets cover its short-term commitments?
At the current liabilities level of UK£20m liabilities, it seems that the business has been able to meet these commitments with a current assets level of UK£22m, leading to a 1.1x current account ratio. Generally, for Renewable Energy companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does AMPH face the risk of succumbing to its debt-load?
With debt reaching 60% of equity, AMPH 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.
Although AMPH’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around AMPH’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure AMPH has company-specific issues impacting its capital structure decisions. You should continue to research Aggregated Micro Power Holdings to get a more holistic view of the small-cap by looking at:
- 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.
- 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.
- 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 past 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. For errors that warrant correction please contact the editor at firstname.lastname@example.org.