Investors are always looking for growth in small-cap stocks like Quality Systems Inc (NASDAQ:QSII), with a market cap of US$1.41b. However, an important fact which most ignore is: how financially healthy is the business? Healthcare Services companies, even ones that are profitable, tend to be high risk. So, understanding the company’s financial health becomes essential. I believe these basic checks tell most of the story you need to know. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into QSII here.
How much cash does QSII generate through its operations?
Over the past year, QSII has maintained its debt levels at around US$45.46m comprising of short- and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at US$26.54m for investing into the business. Additionally, QSII has generated cash from operations of US$65.81m over the same time period, resulting in an operating cash to total debt ratio of 144.75%, signalling that QSII’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In QSII’s case, it is able to generate 1.45x cash from its debt capital.
Can QSII meet its short-term obligations with the cash in hand?
At the current liabilities level of US$135.07m liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.15x. Usually, for Healthcare Services companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is QSII’s debt level acceptable?With debt at 13.49% of equity, QSII may be thought of as appropriately levered. QSII is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if QSII’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For QSII, the ratio of 7.87x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
QSII has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for QSII’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Quality Systems to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for QSII’s future growth? Take a look at our free research report of analyst consensus for QSII’s outlook.
- Valuation: What is QSII worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether QSII is currently mispriced by the market.
- 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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