While small-cap stocks, such as Highlight Event and Entertainment AG (VTX:HLEE) with its market cap of CHF205.17m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is vital, as mismanagement of capital can lead to 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 HLEE here.
Does HLEE produce enough cash relative to debt?
HLEE’s debt levels surged from CHF16.50m to CHF163.93m over the last 12 months – this includes both the current and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at CHF197.66m for investing into the business. Additionally, HLEE has produced cash from operations of CHF153.61m during the same period of time, leading to an operating cash to total debt ratio of 93.71%, signalling that HLEE’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In HLEE’s case, it is able to generate 0.94x cash from its debt capital.
Can HLEE pay its short-term liabilities?
With current liabilities at CHF285.39m, it appears that the company has been able to meet these obligations given the level of current assets of CHF336.80m, with a current ratio of 1.18x. Usually, for Media companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can HLEE service its debt comfortably?With a debt-to-equity ratio of 32.03%, HLEE’s debt level may be seen as prudent. This range is considered safe as HLEE is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
HLEE’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for HLEE’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Highlight Event and Entertainment to get a more holistic view of the stock by looking at:
- Valuation: What is HLEE 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 HLEE is currently mispriced by the market.
- Historical Performance: What has HLEE’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.