Axsome Therapeutics Inc (NASDAQ:AXSM) is a small-cap stock with a market capitalization of US$83.04M. 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 more likely to be higher risk. Assessing first and foremost the financial health is vital. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into AXSM here.
How does AXSM’s operating cash flow stack up against its debt?
Over the past year, AXSM has maintained its debt levels at around US$9.93M comprising of short- and long-term debt. At this stable level of debt, AXSM’s cash and short-term investments stands at US$34.02M , ready to deploy 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 take a look at some of AXSM’s operating efficiency ratios such as ROA here.
Can AXSM pay its short-term liabilities?
At the current liabilities level of US$12.18M liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$35.30M, leading to a 2.9x current account ratio. 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?With a debt-to-equity ratio of 59.41%, AXSM can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since AXSM is currently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
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 exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure AXSM has company-specific issues impacting its capital structure decisions. You should continue to research Axsome Therapeutics to get a better picture of the stock by looking at:
- 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.