Axsome Therapeutics Inc (NASDAQ:AXSM) is a small-cap stock with a market capitalization of US$63.01m. 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? Companies operating in the Pharmaceuticals industry, especially ones that are currently loss-making, are inclined towards being higher risk. So, understanding the company’s financial health becomes crucial. Here are few basic financial health checks you should consider before taking the plunge. However, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into AXSM here.
How much cash does AXSM generate through its operations?
AXSM’s debt levels have fallen from US$9.97m to US$8.47m over the last 12 months – this includes both the current and long-term debt. With this debt payback, the current cash and short-term investment levels stands at US$20.35m , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 examine some of AXSM’s operating efficiency ratios such as ROA here.
Does AXSM’s liquid assets cover its short-term commitments?
Looking at AXSM’s most recent US$9.53m liabilities, the company has been able to meet these obligations given the level of current assets of US$21.54m, with a current ratio of 2.26x. Generally, for Pharmaceuticals companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is AXSM’s debt level acceptable?Since total debt levels have outpaced equities, AXSM is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since AXSM is presently unprofitable, 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.
At its current level of cash flow coverage, AXSM has room for improvement to better cushion for events which may require debt repayment. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for AXSM’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Axsome Therapeutics to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AXSM’s future growth? Take a look at our free research report of analyst consensus for AXSM’s outlook.
- Historical Performance: What has AXSM’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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