While small-cap stocks, such as Hi Ho Silver Resources Inc (CNSX:HHS) with its market cap of CA$2.8m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that HHS is not presently profitable, it’s crucial to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into HHS here.
How much cash does HHS generate through its operations?
HHS has shrunken its total debt levels in the last twelve months, from CA$473.9k to CA$75.8k made up of predominantly near term debt. With this debt repayment, the current cash and short-term investment levels stands at CA$227.3k for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. 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 HHS’s operating efficiency ratios such as ROA here.
Can HHS pay its short-term liabilities?
Looking at HHS’s most recent CA$887.0k liabilities, it appears that the company has not been able to meet these commitments with a current assets level of CA$273.2k, leading to a 0.31x current account ratio. which is under the appropriate industry ratio of 3x.
Does HHS face the risk of succumbing to its debt-load?
With debt at 18.2% of equity, HHS may be thought of as appropriately levered. This range is considered safe as HHS is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for HHS, and the company also has the ability and headroom to increase debt if needed going forward.
Although HHS’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. Furthermore, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure HHS has company-specific issues impacting its capital structure decisions. I recommend you continue to research Hi Ho Silver Resources to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HHS’s future growth? Take a look at our free research report of analyst consensus for HHS’s outlook.
- Historical Performance: What has HHS’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 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 email@example.com.