Yahoo Finance What does Australian Pharmaceutical Industries Limited’s (ASX:API) Balance Sheet Tell Us About Its Future?
Investors are always looking for growth in small-cap stocks like Australian Pharmaceutical Industries Limited (ASX:API), with a market cap of AU$776m. However, an important fact which most ignore is: how financially healthy is the business? Healthcare companies, even ones that are profitable, tend to be high risk. Evaluating financial health as part of your investment thesis is crucial. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into API here.
Does API produce enough cash relative to debt?
API has built up its total debt levels in the last twelve months, from AU$33m to AU$92m , which comprises of short- and long-term debt. With this increase in debt, API currently has AU$36m remaining in cash and short-term investments for investing into the business. Moreover, API has produced cash from operations of AU$54m over the same time period, resulting in an operating cash to total debt ratio of 58%, signalling that API’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In API’s case, it is able to generate 0.58x cash from its debt capital.
Can API pay its short-term liabilities?
At the current liabilities level of AU$815m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of AU$1.1b, with a current ratio of 1.33x. Generally, for Healthcare companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does API face the risk of succumbing to its debt-load?
API’s level of debt is appropriate relative to its total equity, at 19%. API is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
Next Steps:
API has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for API’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Australian Pharmaceutical Industries to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for API’s future growth? Take a look at our free research report of analyst consensus for API’s outlook.
Valuation: What is API 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 API 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.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
