Conformis, Inc. (NASDAQ:CFMS) is a small-cap stock with a market capitalization of US$29m. 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? Medical Equipment companies, especially ones that are currently loss-making, are inclined towards being higher risk. So, understanding the company’s financial health becomes crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into CFMS here.
How much cash does CFMS generate through its operations?
Over the past year, CFMS has maintained its debt levels at around US$30m which accounts for long term debt. At this stable level of debt, CFMS’s cash and short-term investments stands at US$37m 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 assess some of CFMS’s operating efficiency ratios such as ROA here.
Does CFMS’s liquid assets cover its short-term commitments?
At the current liabilities level of US$12m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 5.71x. Having said that, a ratio greater than 3x may be considered high by some.
Can CFMS service its debt comfortably?
With debt reaching 68% of equity, CFMS 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. Though, since CFMS 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.
Although CFMS’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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I’m sure CFMS has company-specific issues impacting its capital structure decisions. I recommend you continue to research Conformis to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CFMS’s future growth? Take a look at our free research report of analyst consensus for CFMS’s outlook.
- Historical Performance: What has CFMS’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.
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.
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