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Investors are always looking for growth in small-cap stocks like Huron Consulting Group Inc. (NASDAQ:HURN), with a market cap of US$1.1b. However, an important fact which most ignore is: how financially healthy is the business? Understanding the company's financial health becomes vital, as mismanagement of capital can lead to 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, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into HURN here.
HURN’s Debt (And Cash Flows)
HURN has sustained its debt level by about US$396m over the last 12 months including long-term debt. At this current level of debt, HURN currently has US$8.8m remaining in cash and short-term investments , ready to be used for running the business. Moreover, HURN has produced cash from operations of US$100m during the same period of time, resulting in an operating cash to total debt ratio of 25%, meaning that HURN’s current level of operating cash is high enough to cover debt.
Can HURN pay its short-term liabilities?
With current liabilities at US$374m, it seems that the business may not be able to easily meet these obligations given the level of current assets of US$217m, with a current ratio of 0.58x. The current ratio is the number you get when you divide current assets by current liabilities.
Can HURN service its debt comfortably?
HURN is a relatively highly levered company with a debt-to-equity of 72%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. We can check to see whether HURN 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 HURN's, case, the ratio of 3.14x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving HURN ample headroom to grow its debt facilities.
Although HURN’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. However, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I'm sure HURN has company-specific issues impacting its capital structure decisions. You should continue to research Huron Consulting Group to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HURN’s future growth? Take a look at our free research report of analyst consensus for HURN’s outlook.
- Valuation: What is HURN 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 HURN 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.