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Is Herencia Resources plc’s (LON:HER) Balance Sheet Strong Enough To Weather A Storm?

Cole Patterson

Investors are always looking for growth in small-cap stocks like Herencia Resources plc (AIM:HER), with a market cap of UK£4.26M. However, an important fact which most ignore is: how financially healthy is the business? Since HER is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into HER here.

How does HER’s operating cash flow stack up against its debt?

Over the past year, HER has ramped up its debt from UK£250.00K to UK£751.86K , which comprises of short- and long-term debt. With this rise in debt, HER’s cash and short-term investments stands at UK£16.92K 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. For this article’s sake, I won’t be looking at this today, but you can assess some of HER’s operating efficiency ratios such as ROA here.

Can HER meet its short-term obligations with the cash in hand?

With current liabilities at UK£1.30M, it appears that the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.13x, which is below the prudent industry ratio of 3x.

AIM:HER Historical Debt Jun 18th 18

Does HER face the risk of succumbing to its debt-load?

With debt at 24.51% of equity, HER may be thought of as appropriately levered. HER is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for HER, and the company also has the ability and headroom to increase debt if needed going forward.

Next Steps:

Although HER’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. In addition to this, 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 HER has company-specific issues impacting its capital structure decisions. You should continue to research Herencia Resources to get a more holistic view of the stock by looking at:

  1. Historical Performance: What has HER’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.
  2. 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 pass 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.