Harvard Bioscience Inc (NASDAQ:HBIO) is a small-cap stock with a market capitalization of US$139m. 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? Companies operating in the Life Sciences industry, in particular ones that run negative earnings, are inclined towards being higher risk. Assessing first and foremost the financial health is essential. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I recommend you dig deeper yourself into HBIO here.
Does HBIO produce enough cash relative to debt?
HBIO’s debt levels surged from US$12m to US$61m over the last 12 months – this includes long-term debt. With this growth in debt, HBIO’s cash and short-term investments stands at US$6.7m , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, 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 take a look at some of HBIO’s operating efficiency ratios such as ROA here.
Can HBIO pay its short-term liabilities?
With current liabilities at US$19m, the company has been able to meet these obligations given the level of current assets of US$55m, with a current ratio of 2.83x. For Life Sciences companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is HBIO’s debt level acceptable?
With a debt-to-equity ratio of 75%, HBIO can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since HBIO is presently unprofitable, 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.
Although HBIO’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I’m sure HBIO has company-specific issues impacting its capital structure decisions. You should continue to research Harvard Bioscience to get a more holistic view 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.
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.
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