Hebron Technology Co Ltd. (NASDAQ:HEBT) is a small-cap stock with a market capitalization of US$26.31M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Assessing first and foremost the financial health is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into HEBT here.
Does HEBT generate an acceptable amount of cash through operations?
Over the past year, HEBT has ramped up its debt from US$820.76K to US$1.52M , which comprises of short- and long-term debt. With this rise in debt, HEBT’s cash and short-term investments stands at US$3.22M 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of HEBT’s operating efficiency ratios such as ROA here.
Can HEBT pay its short-term liabilities?
With current liabilities at US$13.19M, it seems that the business has been able to meet these commitments with a current assets level of US$38.58M, leading to a 2.93x current account ratio. For Machinery companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can HEBT service its debt comfortably?
With debt at 3.75% of equity, HEBT may be thought of as having low leverage. This range is considered safe as HEBT is not taking on too much debt obligation, which may be constraining for future growth. We can test if HEBT’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For HEBT, the ratio of 82.13x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving HEBT ample headroom to grow its debt facilities.
HEBT’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 exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for HEBT’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Hebron Technology to get a more holistic view of the stock by looking at:
- Historical Performance: What has HEBT’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.
- 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 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.