While small-cap stocks, such as Hecla Mining Company (NYSE:HL) with its market cap of US$1.4b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since HL is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into HL here.
How much cash does HL generate through its operations?
Over the past year, HL has ramped up its debt from US$515m to US$548m , which is made up of current and long term debt. With this growth in debt, HL currently has US$245m remaining in cash and short-term investments for investing into the business. Moreover, HL has generated US$117m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 21%, indicating that HL’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires positive earnings. In HL’s case, it is able to generate 0.21x cash from its debt capital.
Can HL meet its short-term obligations with the cash in hand?
With current liabilities at US$105m, it seems that the business has been able to meet these obligations given the level of current assets of US$352m, with a current ratio of 3.35x. However, a ratio greater than 3x may be considered as quite high.
Does HL face the risk of succumbing to its debt-load?
HL’s level of debt is appropriate relative to its total equity, at 37%. This range is considered safe as HL is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with HL, and the company has plenty of headroom and ability to raise debt should it need to in the future.
HL’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. This is only a rough assessment of financial health, and I’m sure HL has company-specific issues impacting its capital structure decisions. I suggest you continue to research Hecla Mining to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HL’s future growth? Take a look at our free research report of analyst consensus for HL’s outlook.
- Valuation: What is HL 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 HL 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.
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 firstname.lastname@example.org.