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Are Hooker Furniture Corporation’s (NASDAQ:HOFT) Interest Costs Too High?

Laura Kearns

Investors are always looking for growth in small-cap stocks like Hooker Furniture Corporation (NASDAQ:HOFT), with a market cap of US$468.67M. However, an important fact which most ignore is: how financially healthy is the business? Consumer Durables businesses operating in the environment facing headwinds from current disruption, even ones that are profitable, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into HOFT here.

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

HOFT has increased its debt level by about US$47.59M over the last 12 months made up of current and long term debt. With this ramp up in debt, HOFT currently has US$39.79M remaining in cash and short-term investments , ready to deploy into the business. Moreover, HOFT has produced cash from operations of US$31.24M during the same period of time, leading to an operating cash to total debt ratio of 65.65%, meaning that HOFT’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In HOFT’s case, it is able to generate 0.66x cash from its debt capital.

Does HOFT’s liquid assets cover its short-term commitments?

Looking at HOFT’s most recent US$64.06M liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$211.92M, leading to a 3.31x current account ratio. Though, a ratio greater than 3x may be considered as too high, as HOFT could be holding too much capital in a low-return investment environment.

NasdaqGS:HOFT Historical Debt Mar 12th 18

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

With debt at 24.78% of equity, HOFT may be thought of as appropriately levered. This range is considered safe as HOFT is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if HOFT’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 HOFT, the ratio of 46.33x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as HOFT’s high interest coverage is seen as responsible and safe practice.

Next Steps:

HOFT’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure HOFT has company-specific issues impacting its capital structure decisions. I recommend you continue to research Hooker Furniture to get a better picture of the stock by looking at the areas below. Just a heads up – to access some parts of the Simply Wall St research tool you might be asked to create a free account, but it takes just one click and the information they provide is definitely worth it in my opinion.


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.