While small-cap stocks, such as Aspen Group Inc (NASDAQ:ASPU) with its market cap of US$138.43m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that ASPU is not presently profitable, it’s vital to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into ASPU here.
How much cash does ASPU generate through its operations?
Over the past year, ASPU has reduced its debt from US$1.35m to US$50.00k – this includes both the current and long-term debt. With this debt repayment, ASPU’s cash and short-term investments stands at US$2.76m for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 take a look at some of ASPU’s operating efficiency ratios such as ROA here.
Can ASPU meet its short-term obligations with the cash in hand?
With current liabilities at US$2.75m, it appears that the company has been able to meet these commitments with a current assets level of US$8.31m, leading to a 3.03x current account ratio. Though, anything about 3x may be excessive, since ASPU may be leaving too much capital in low-earning investments.
Can ASPU service its debt comfortably?With a debt-to-equity ratio of 54.19%, ASPU can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since ASPU is currently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
At its current level of cash flow coverage, ASPU has room for improvement to better cushion for events which may require debt repayment. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for ASPU’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Aspen Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for ASPU’s future growth? Take a look at our free research report of analyst consensus for ASPU’s outlook.
- Historical Performance: What has ASPU’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.