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While small-cap stocks, such as National HealthCare Corporation (NYSEMKT:NHC) with its market cap of US$1.2b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. We'll look at some basic checks that can form a snapshot the company’s financial strength. However, potential investors would need to take a closer look, and I suggest you dig deeper yourself into NHC here.
NHC’s Debt (And Cash Flows)
Over the past year, NHC has reduced its debt from US$127m to US$78m , which includes long-term debt. With this debt payback, NHC's cash and short-term investments stands at US$183m , ready to be used for running the business. On top of this, NHC has generated cash from operations of US$98m during the same period of time, leading to an operating cash to total debt ratio of 126%, indicating that NHC’s operating cash is sufficient to cover its debt.
Does NHC’s liquid assets cover its short-term commitments?
Looking at NHC’s US$158m in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of US$322m, with a current ratio of 2.04x. The current ratio is calculated by dividing current assets by current liabilities. For Healthcare companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.
Does NHC face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 11%, NHC's debt level may be seen as prudent. NHC is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
NHC 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 proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I'm sure NHC has company-specific issues impacting its capital structure decisions. I suggest you continue to research National HealthCare to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for NHC’s future growth? Take a look at our free research report of analyst consensus for NHC’s outlook.
- Valuation: What is NHC 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 NHC 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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.