Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Investors are always looking for growth in small-cap stocks like Himax Technologies, Inc. (NASDAQ:HIMX), with a market cap of US$577m. However, an important fact which most ignore is: how financially healthy is the business? Understanding the company's financial health becomes essential, 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. However, this is just a partial view of the stock, and I’d encourage you to dig deeper yourself into HIMX here.
Does HIMX Produce Much Cash Relative To Its Debt?
Over the past year, HIMX has ramped up its debt from US$147m to US$204m . With this increase in debt, HIMX's cash and short-term investments stands at US$108m to keep the business going. Its negative operating cash flow means calculating cash-to-debt wouldn't be useful. For this article’s sake, I won’t be looking at this today, but you can assess some of HIMX’s operating efficiency ratios such as ROA here.
Can HIMX meet its short-term obligations with the cash in hand?
At the current liabilities level of US$408m, the company has been able to meet these obligations given the level of current assets of US$665m, with a current ratio of 1.63x. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Semiconductor 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.
Is HIMX’s debt level acceptable?
With a debt-to-equity ratio of 46%, HIMX can be considered as an above-average leveraged company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies.
Although HIMX’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven't considered other factors such as how HIMX has been performing in the past. I recommend you continue to research Himax Technologies to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HIMX’s future growth? Take a look at our free research report of analyst consensus for HIMX’s outlook.
- Valuation: What is HIMX 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 HIMX 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.