Hyster-Yale Materials Handling Inc (NYSE:HY) is a small-cap stock with a market capitalization of US$1.32B. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Evaluating financial health as part of your investment thesis is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into HY here.
How does HY’s operating cash flow stack up against its debt?
HY has built up its total debt levels in the last twelve months, from US$53.70M to US$211.70M , which comprises of short- and long-term debt. With this rise in debt, HY’s cash and short-term investments stands at US$43.20M , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of HY’s operating efficiency ratios such as ROA here.
Can HY meet its short-term obligations with the cash in hand?
With current liabilities at US$576.50M, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.41x. Usually, for Machinery companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does HY face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 52.90%, HY can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether HY 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 HY’s, case, the ratio of 6.04x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as HY’s high interest coverage is seen as responsible and safe practice.
HY’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 proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how HY has been performing in the past. I recommend you continue to research Hyster-Yale Materials Handling 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.
- 1. Future Outlook: What are well-informed industry analysts predicting for HY’s future growth? Take a look at this free research report of analyst consensus for HY’s outlook.
- 2. Valuation: What is HY worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in this free research report helps visualize whether HY is currently mispriced by the market.
- 3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore a 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.