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Investors are always looking for growth in small-cap stocks like Harvard Bioscience, Inc. (NASDAQ:HBIO), with a market cap of US$67m. However, an important fact which most ignore is: how financially healthy is the business? Given that HBIO is not presently profitable, it’s vital to understand the current state of its operations and pathway to profitability. We'll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, potential investors would need to take a closer look, and I suggest you dig deeper yourself into HBIO here.
Does HBIO Produce Much Cash Relative To Its Debt?
HBIO's debt levels surged from US$63m to US$68m over the last 12 months , which includes long-term debt. With this rise in debt, HBIO's cash and short-term investments stands at US$5.0m , ready to be used for running the business. Moreover, HBIO has produced cash from operations of US$4.4m during the same period of time, leading to an operating cash to total debt ratio of 6.5%, indicating that HBIO’s debt is not covered by operating cash.
Can HBIO pay its short-term liabilities?
Looking at HBIO’s US$24m in current liabilities, the company has been able to meet these obligations given the level of current assets of US$54m, with a current ratio of 2.22x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Life Sciences companies, this is a suitable ratio as there's enough of a cash buffer without holding too much capital in low return investments.
Can HBIO service its debt comfortably?
With debt reaching 71% of equity, HBIO may be thought of as relatively highly levered. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. However, since HBIO is presently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
HBIO’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around HBIO's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for HBIO's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Harvard Bioscience to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HBIO’s future growth? Take a look at our free research report of analyst consensus for HBIO’s outlook.
- Valuation: What is HBIO 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 HBIO 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 email@example.com. 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.