Yahoo Finance Is American Public Education, Inc.’s (NASDAQ:APEI) Balance Sheet A Threat To Its Future?
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Zero-debt allows substantial financial flexibility, especially for small-cap companies like American Public Education, Inc. (NASDAQ:APEI), as the company does not have to adhere to strict debt covenants. However, it also faces higher cost of capital given interest cost is generally lower than equity. Zero-debt can alleviate some risk associated with the company meeting debt obligations, but this doesn’t automatically mean APEI has outstanding financial strength. I will go over a basic overview of the stock’s financial health, which I believe provides a ballpark estimate of their financial health status.
Check out our latest analysis for American Public Education
Does APEI’s growth rate justify its decision for financial flexibility over lower cost of capital?
Debt capital generally has lower cost of capital compared to equity funding. However, the trade-off is debtholders’ higher claim on company assets in the event of liquidation and stringent obligations around capital management. Either APEI does not have access to cheap capital, or it may believe this trade-off is not worth it. This makes sense only if the company has a competitive edge and is growing fast off its equity capital. Opposite to the high growth we were expecting, APEI’s negative revenue growth of -0.3% hardly justifies opting for zero-debt. If the decline sustains, it may find it hard to raise debt at an acceptable cost.
Can APEI meet its short-term obligations with the cash in hand?
Given zero long-term debt on its balance sheet, American Public Education has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. At the current liabilities level of US$41m, it appears that the company has been able to meet these commitments with a current assets level of US$220m, leading to a 5.36x current account ratio. However, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
Next Steps:
APEI is a fast-growing firm, which supports having have zero-debt and financial freedom to continue to ramp up growth. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Moving forward, APEI’s financial situation may change. This is only a rough assessment of financial health, and I’m sure APEI has company-specific issues impacting its capital structure decisions. I recommend you continue to research American Public Education to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for APEI’s future growth? Take a look at our free research report of analyst consensus for APEI’s outlook.
Valuation: What is APEI 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 APEI 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.
