What does Horizon Global Corporation’s (HZN) Balance Sheet Tell Us Abouts Its Future?
Investors are always looking for growth in small-cap stocks like Horizon Global Corporation (NYSE:HZN), with a market cap of USD $441.37M. However, an important fact which most ignore is: how financially healthy is the company? The significance of doing due diligence on a company’s financial strength stems from the fact that over 20,000 companies go bankrupt in every quarter in the US alone. These factors make a basic understanding of a company’s financial position of utmost importance for a potential investor. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. See our latest analysis for HZN
Does HZN generate an acceptable amount of cash through operations?
There are many headwinds that come unannounced, such as natural disasters and political turmoil, which can challenge a small business and its ability to adapt and recover. These catastrophes does not mean the company can stop servicing its debt obligations. We can test the impact of these adverse events by looking at whether cash from its current operations can pay back its current debt obligations. HZN’s recent operating cash flow was 0.05 times its debt within the past year. This means what HZN can generate on an annual basis only covers less than a tenth of what it actually owes its debtors in the near term, which raises a red flag.
Can HZN pay its short-term liabilities?
What about its commitments to other stakeholders such as payments to suppliers and employees? During times of unfavourable events, HZN could be required to liquidate some of its assets to meet these upcoming payments, as cash flow from operations is hindered. We test for HZN’s ability to meet these needs by comparing its cash and short-term investments with current liabilities. Our analysis shows that HZN does have enough liquid assets on hand to meet its upcoming liabilities, which lowers our concerns should adverse events arise.
Does HZN face the risk of succumbing to its debt-load?
A substantially higher debt poses a significant threat to a company’s profitability during a downturn. For HZN, the debt-to-equity ratio stands at above 100%, which means that it is a highly leveraged company. This is not a problem if the company has consistently grown its profits. But during a business downturn, as liquidity may dry up, making it hard to operate. While debt-to-equity ratio has several factors at play, an easier way to check whether HZN’s leverage is at a sustainable level is to check its ability to service the debt. A company generating earnings at least three times its interest payments is considered financially sound. In HZN’s case, its interest is not sufficiently covered by its profits as the ratio is 1.66x. Debtors may be less inclined to loan the company more money, giving HZN less headroom for growth through debt.
Next Steps:
Are you a shareholder? HZN’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, its high liquidity means the company should continue to operate smoothly in the case of adverse events. Given that HZN’s financial situation may change. You should always be keeping on top of market expectations for HZN’s future growth on our free analysis platform.
Are you a potential investor? HZN’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. You should continue your analysis by taking a look at HZN’s past performance analysis on our free platform to figure out HZN’s financial health position.
To help readers see pass 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.
