While small-cap stocks, such as Hebron Technology Co Ltd. (NASDAQ:HEBT) with its market cap of US$26.60M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, 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. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into HEBT here.
How does HEBT’s operating cash flow stack up against its debt?
HEBT has sustained its debt level by about US$820.76K over the last 12 months comprising of short- and long-term debt. At this current level of debt, the current cash and short-term investment levels stands at US$11.88M for investing into the business. On top of this, HEBT has produced cash from operations of US$1.58M over the same time period, resulting in an operating cash to total debt ratio of 192.18%, signalling that HEBT’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In HEBT’s case, it is able to generate 1.92x cash from its debt capital.
Does HEBT’s liquid assets cover its short-term commitments?
At the current liabilities level of US$15.40M liabilities, the company has been able to meet these obligations given the level of current assets of US$34.58M, with a current ratio of 2.25x. Generally, for Machinery companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can HEBT service its debt comfortably?
With a debt-to-equity ratio of 2.04%, HEBT’s debt level is relatively low. This range is considered safe as HEBT is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether HEBT 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 HEBT’s, case, the ratio of 85.96x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving HEBT ample headroom to grow its debt facilities.
HEBT’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for HEBT’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Hebron Technology to get a more holistic view of the stock by looking at:
- 1. Historical Performance: What has HEBT’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.