Is TherapeuticsMD, Inc.’s (NASDAQ:TXMD) Balance Sheet A Threat To Its Future?

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Investors are always looking for growth in small-cap stocks like TherapeuticsMD, Inc. (NASDAQ:TXMD), with a market cap of US$1.3b. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Pharmaceuticals industry, especially ones that are currently loss-making, are more likely to be higher risk. So, understanding the company’s financial health becomes vital. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into TXMD here.

How does TXMD’s operating cash flow stack up against its debt?

TXMD has increased its debt level by about US$73m over the last 12 months accounting for long term debt. With this growth in debt, TXMD currently has US$190m remaining in cash and short-term investments for investing 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. For this article’s sake, I won’t be looking at this today, but you can assess some of TXMD’s operating efficiency ratios such as ROA here.

Can TXMD meet its short-term obligations with the cash in hand?

At the current liabilities level of US$29m, it seems that the business has been able to meet these commitments with a current assets level of US$212m, leading to a 7.23x current account ratio. However, a ratio above 3x may be considered excessive by some investors.

NasdaqGS:TXMD Historical Debt, February 22nd 2019
NasdaqGS:TXMD Historical Debt, February 22nd 2019

Does TXMD face the risk of succumbing to its debt-load?

TXMD is a relatively highly levered company with a debt-to-equity of 55%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since TXMD is presently loss-making, 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.

Next Steps:

Although TXMD’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 TXMD has company-specific issues impacting its capital structure decisions. I recommend you continue to research TherapeuticsMD to get a better picture of the small-cap by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for TXMD’s future growth? Take a look at our free research report of analyst consensus for TXMD’s outlook.
  2. Valuation: What is TXMD 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 TXMD is currently mispriced by the market.
  3. 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.

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