Seanergy Maritime Holdings Corp (NASDAQ:SHIP) is a small-cap stock with a market capitalization of USD $35.61M. 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. There are always disruptions which destabilize an existing industry, in which most small-cap companies are the first casualties. These factors make a basic understanding of a company’s financial position of utmost importance for a potential investor. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. See our latest analysis for SHIP
How does SHIP’s operating cash flow stack up against its debt?
Unxpected adverse events, such as natural disasters and wars, can be a true test of a company’s capacity to meet its obligations. These catastrophes does not mean the company can stop servicing its debt obligations. Can SHIP pay off what it owes to its debtholder by using only cash from its operational activities? Last year, SHIP’s operating cash flow was -0.04x its current debt. This means what SHIP can generate on an annual basis, which is currently a negative value, does not cover what it actually owes its debtors in the near term. This raises a red flag, looking at SHIP’s operations at this point in time.
Does SHIP’s liquid assets cover its short-term commitments?
What about its commitments to other stakeholders such as payments to suppliers and employees? In times of adverse events, SHIP may need to liquidate its short-term assets to pay these immediate obligations. We should examine if the company’s cash and short-term investment levels match its current liabilities. Our analysis shows that SHIP is able to meet its upcoming commitments with its cash and other short-term assets, which lessens our concerns for the company’s business operations should any unfavourable circumstances arise.
Can SHIP service its debt comfortably?
Debt-to-equity ratio tells us how much of the asset debtors could claim if the company went out of business. In the case of SHIP, the debt-to-equity ratio is over 100%, which indicates that the company is holding a high level of debt relative to its net worth. In the event of financial turmoil, the company may experience difficulty meeting interest and other debt obligations.
Are you a shareholder? SHIP’s high debt levels is not met with high cash flow coverage. This leaves room for improvement in terms of debt management and operational efficiency. In addition to this, the company may struggle to meet its near term liabilities should an adverse event occur. Moving forward, its financial position may change. I recommend researching market expectations for SHIP’s future growth on our free analysis platform.
Are you a potential investor? SHIP’s high debt levels along with poor cash coverage as well as low liquidity coverage of near-term expenses may not be what you’re after in an investment. But, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of SHIP’s track record. You should continue your analysis by taking a look at SHIP’s past performance analysis on our free platform to figure out SHIP’s financial health position.
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.