Investors are always looking for growth in small-cap stocks like Hutter & Schrantz Stahlbau AG (VIE:HST), with a market cap of €42m. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into HST here.
How does HST’s operating cash flow stack up against its debt?
HST has sustained its debt level by about €16m over the last 12 months which accounts for long term debt. At this constant level of debt, the current cash and short-term investment levels stands at €19m , ready to deploy into the business. Moreover, HST has generated cash from operations of €8.2m during the same period of time, resulting in an operating cash to total debt ratio of 52%, signalling that HST’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In HST’s case, it is able to generate 0.52x cash from its debt capital.
Can HST pay its short-term liabilities?
Looking at HST’s €24m in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of €65m, leading to a 2.69x current account ratio. For Construction companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Is HST’s debt level acceptable?
HST’s level of debt is appropriate relative to its total equity, at 36%. This range is considered safe as HST is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if HST’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For HST, the ratio of 29.02x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as HST’s high interest coverage is seen as responsible and safe practice.
Next Steps:
HST’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how HST has been performing in the past. You should continue to research Hutter & Schrantz Stahlbau to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HST’s future growth? Take a look at our free research report of analyst consensus for HST’s outlook.
- Valuation: What is HST 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 HST 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.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.