While small-cap stocks, such as Aehr Test Systems (NASDAQ:AEHR) with its market cap of US$49.93M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Semiconductor companies, in particular ones that run negative earnings, are more likely to be higher risk. Assessing first and foremost the financial health is crucial. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I recommend you dig deeper yourself into AEHR here.
Does AEHR generate an acceptable amount of cash through operations?
Over the past year, AEHR has maintained its debt levels at around US$6.11M – this includes both the current and long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$17.80M 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 examine some of AEHR’s operating efficiency ratios such as ROA here.
Does AEHR’s liquid assets cover its short-term commitments?
At the current liabilities level of US$7.88M liabilities, the company has been able to meet these obligations given the level of current assets of US$29.38M, with a current ratio of 3.73x. Though, anything about 3x may be excessive, since AEHR may be leaving too much capital in low-earning investments.
Is AEHR’s debt level acceptable?With debt at 32.55% of equity, AEHR may be thought of as appropriately levered. AEHR is not taking on too much debt commitment, which may be constraining for future growth. AEHR’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
AEHR’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure AEHR has company-specific issues impacting its capital structure decisions. I recommend you continue to research Aehr Test Systems to get a more holistic view of the stock by looking at:
- 1. Future Outlook: What are well-informed industry analysts predicting for AEHR’s future growth? Take a look at our free research report of analyst consensus for AEHR’s outlook.
- 2. Historical Performance: What has AEHR’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.
- 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.