Seanergy Maritime Holdings Corp (NASDAQ:SHIP) is a small-cap stock with a market capitalization of US$34.42M. 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? Given that SHIP is not presently profitable, it’s vital to evaluate the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into SHIP here.
How does SHIP’s operating cash flow stack up against its debt?
SHIP’s debt level has been constant at around US$219.15M over the previous year – this includes both the current and long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$8.89M for investing into the business. Additionally, SHIP has generated cash from operations of US$2.78M in the last twelve months, resulting in an operating cash to total debt ratio of 1.27%, meaning that SHIP’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making companies since metrics such as return on asset (ROA) requires a positive net income. In SHIP’s case, it is able to generate 0.013x cash from its debt capital.
Can SHIP meet its short-term obligations with the cash in hand?
With current liabilities at US$34.46M, it appears that the company has not been able to meet these commitments with a current assets level of US$19.50M, leading to a 0.57x current account ratio. which is under the appropriate industry ratio of 3x.
Is SHIP’s debt level acceptable?
With total debt exceeding equities, SHIP is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since SHIP is currently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
With a high level of debt on its balance sheet, SHIP could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for SHIP to increase its operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. This is only a rough assessment of financial health, and I’m sure SHIP has company-specific issues impacting its capital structure decisions. I suggest you continue to research Seanergy Maritime Holdings to get a more holistic view of the stock by looking at:
- Historical Performance: What has SHIP’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.
- 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.