National American University Holdings Inc (NASDAQ:NAUH) is a small-cap stock with a market capitalization of US$27.47M. 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 NAUH is loss-making right now, it’s crucial to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into NAUH here.
Does NAUH generate enough cash through operations?
Over the past year, NAUH has maintained its debt levels at around US$11.57M made up of predominantly near term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$16.16M for investing into the business. Additionally, NAUH has produced cash from operations of US$816.00K during the same period of time, leading to an operating cash to total debt ratio of 7.05%, indicating that NAUH’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires positive earnings. In NAUH’s case, it is able to generate 0.071x cash from its debt capital.
Does NAUH’s liquid assets cover its short-term commitments?
With current liabilities at US$12.21M, it seems that the business has been able to meet these commitments with a current assets level of US$23.46M, leading to a 1.92x current account ratio. Generally, for Consumer Services 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.
Is NAUH’s debt level acceptable?NAUH is a relatively highly levered company with a debt-to-equity of 53.34%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. However, since NAUH is presently loss-making, 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.
NAUH’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how NAUH has been performing in the past. I recommend you continue to research National American University Holdings to get a better picture of the stock by looking at the areas below. Just a heads up – to access some parts of the Simply Wall St research tool you might be asked to create a free account, but it takes just one click and the information they provide is definitely worth it in my opinion.
- 1. Historical Performance: What has NAUH’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 NAUH’s historicals for more clarity.
- 2. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore a free list of these great stocks here.