Investors are always looking for growth in small-cap stocks like National American University Holdings Inc (NASDAQ:NAUH), with a market cap of US$26.28M. However, an important fact which most ignore is: how financially healthy is the business? Since NAUH is loss-making right now, it’s essential to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, I know these factors are very high-level, so I’d encourage you to 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 , which is mainly comprised of near term debt. At this current level of debt, NAUH’s cash and short-term investments stands at US$16.16M , ready to deploy into the business. Additionally, NAUH has produced cash from operations of US$816.00K during the same period of time, resulting in an operating cash to total debt ratio of 7.05%, meaning that NAUH’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for loss making businesses since 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.
Can NAUH pay its short-term liabilities?
With current liabilities at US$12.21M, it appears that the company has been able to meet these obligations given the level of current assets of US$23.46M, with a current ratio of 1.92x. Usually, for Consumer Services companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can NAUH service its debt comfortably?NAUH is a relatively highly levered company with a debt-to-equity of 63.76%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since NAUH is presently loss-making, 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.
NAUH’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. 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. You should continue to research National American University Holdings to get a better picture of the stock by looking at:
- 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 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.