Domain Holdings Australia Limited (ASX:DHG) is a small-cap stock with a market capitalization of AU$1.7b. 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? Since DHG is loss-making right now, it’s essential to understand the current state of its operations and pathway to profitability. We’ll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, these checks don’t give you a full picture, so I’d encourage you to dig deeper yourself into DHG here.
DHG’s Debt (And Cash Flows)
DHG’s debt levels surged from AU$164m to AU$187m over the last 12 months – this includes long-term debt. With this increase in debt, the current cash and short-term investment levels stands at AU$66m , ready to be used for running the business. Moreover, DHG has produced AU$97m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 52%, meaning that DHG’s current level of operating cash is high enough to cover debt.
Does DHG’s liquid assets cover its short-term commitments?
With current liabilities at AU$70m, it seems that the business has been able to meet these obligations given the level of current assets of AU$121m, with a current ratio of 1.73x. The current ratio is calculated by dividing current assets by current liabilities. Usually, for Interactive Media and Services companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can DHG service its debt comfortably?
With a debt-to-equity ratio of 16%, DHG’s debt level may be seen as prudent. This range is considered safe as DHG is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Risk around debt is very low for DHG, and the company also has the ability and headroom to increase debt if needed going forward.
DHG has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for DHG’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Domain Holdings Australia to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for DHG’s future growth? Take a look at our free research report of analyst consensus for DHG’s outlook.
- Valuation: What is DHG 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 DHG 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 firstname.lastname@example.org. 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.