Is CHF Solutions, Inc. (NASDAQ:CHFS) Spending Too Much Money?

CHF Solutions, Inc. (NASDAQ:CHFS) shareholders, and potential investors, need to understand how much cash the business makes from its core operational activities, as well as how much is invested back into the business. After investment, what’s left over is what belongs to you, the investor. This also determines how much the stock is worth. Today we will examine CHF Solutions’s ability to generate cash flows, as well as the level of capital expenditure it is expected to incur over the next couple of years, which will result in how much money goes to you.

View our latest analysis for CHF Solutions

What is CHF Solutions’s cash yield?

Free cash flow (FCF) is the amount of cash CHF Solutions has left after it pays off its expenses, including its net capital expenditures, which is what the company needs to spend each year to maintain or grow its business operations.

The two ways to assess whether CHF Solutions’s FCF is sufficient, is to compare the FCF yield to the market index yield, as well as determine whether the top-line operating cash flows will continue to grow.

Free Cash Flow = Operating Cash Flows – Net Capital Expenditure

Free Cash Flow Yield = Free Cash Flow / Enterprise Value

where Enterprise Value = Market Capitalisation + Net Debt

The business reinvests all its cash profits as well as borrows more money, to maintain and grow the company. This leads to a negative FCF, as well as negative FCF yield, in which case is not a very useful measure.

NasdaqCM:CHFS Balance Sheet Net Worth, March 27th 2019
NasdaqCM:CHFS Balance Sheet Net Worth, March 27th 2019

Does CHF Solutions have a favourable cash flow trend?

CHF Solutions’s FCF may be negative today, but is operating cash flows expected to improve in the future? Let’s examine the cash flow trend the company is anticipated to produce over time. In the next couple of years, CHF Solutions is expected to deliver a decline in operating cash flow compared to the most recent level, which is not an encouraging sign. Below is a table of CHF Solutions’s operating cash flow in the past year, as well as the anticipated level going forward.
Current +1 year +2 year
Operating Cash Flow (OCF) -US$14.6m -US$14.8m -US$8.2m
OCF Growth Year-On-Year 1.9% -45%
OCF Growth From Current Year -44%

Next Steps:

Not only does CHF Solutions offer a yield above the market index, its operating cash flow growth in the short run further strengthens its case as a solid company to invest in going forward. Now you know to keep cash flows in mind, I suggest you continue to research CHF Solutions to get a better picture of the company by looking at:

  1. Historical Performance: What has CHFS’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.
  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on CHF Solutions’s board and the CEO’s back ground.
  3. Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.