Is Heritage-Crystal Clean Inc’s (NASDAQ:HCCI) Balance Sheet Strong Enough To Weather A Storm?
Investors are always looking for growth in small-cap stocks like Heritage-Crystal Clean Inc (NASDAQ:HCCI), with a market cap of US$484.48M. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into HCCI here.
How does HCCI’s operating cash flow stack up against its debt?
HCCI’s debt levels have fallen from US$63.45M to US$28.74M over the last 12 months , which comprises of short- and long-term debt. With this debt repayment, HCCI’s cash and short-term investments stands at US$41.89M for investing into the business. Additionally, HCCI has produced US$45.33M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 157.71%, meaning that HCCI’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In HCCI’s case, it is able to generate 1.58x cash from its debt capital.
Can HCCI pay its short-term liabilities?
With current liabilities at US$40.43M, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.84x. Usually, for Commercial Services companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can HCCI service its debt comfortably?
HCCI’s level of debt is appropriate relative to its total equity, at 12.24%. This range is considered safe as HCCI is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether HCCI is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In HCCI’s, case, the ratio of 11.97x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving HCCI ample headroom to grow its debt facilities.
Next Steps:
HCCI’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. 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 HCCI’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Heritage-Crystal Clean to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for HCCI’s future growth? Take a look at our free research report of analyst consensus for HCCI’s outlook.
Valuation: What is HCCI 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 HCCI 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 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.
