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While small-cap stocks, such as Haverty Furniture Companies, Inc. (NYSE:HVT) with its market cap of US$487m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Understanding the company's financial health becomes essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. The following basic checks can help you get a picture of the company's balance sheet strength. Nevertheless, this is not a comprehensive overview, so I’d encourage you to dig deeper yourself into HVT here.
Does HVT Produce Much Cash Relative To Its Debt?
HVT has shrunk its total debt levels in the last twelve months, from US$55m to US$51m made up of predominantly near term debt. With this debt repayment, the current cash and short-term investment levels stands at US$72m to keep the business going. On top of this, HVT has produced US$70m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 139%, indicating that HVT’s current level of operating cash is high enough to cover debt.
Can HVT pay its short-term liabilities?
With current liabilities at US$88m, it seems that the business has been able to meet these obligations given the level of current assets of US$202m, with a current ratio of 2.29x. The current ratio is the number you get when you divide current assets by current liabilities. For Specialty Retail companies, this ratio is within a sensible range since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does HVT face the risk of succumbing to its debt-load?
With debt at 18% of equity, HVT may be thought of as appropriately levered. HVT is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if HVT’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 HVT, the ratio of 29.32x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
HVT 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 will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for HVT's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Haverty Furniture Companies to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HVT’s future growth? Take a look at our free research report of analyst consensus for HVT’s outlook.
- Valuation: What is HVT 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 HVT 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.