Investors are always looking for growth in small-cap stocks like Huntsworth plc (LON:HNT), with a market cap of UK£442.49m. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into HNT here.
Does HNT produce enough cash relative to debt?
Over the past year, HNT has maintained its debt levels at around UK£46.31m comprising of short- and long-term debt. At this current level of debt, HNT’s cash and short-term investments stands at UK£10.05m , ready to deploy into the business. Moreover, HNT has generated cash from operations of UK£22.62m over the same time period, resulting in an operating cash to total debt ratio of 48.85%, indicating that HNT’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 HNT’s case, it is able to generate 0.49x cash from its debt capital.
Can HNT pay its short-term liabilities?
At the current liabilities level of UK£70.20m liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.23x. For Media companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Is HNT’s debt level acceptable?With a debt-to-equity ratio of 29.42%, HNT’s debt level may be seen as prudent. This range is considered safe as HNT is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if HNT’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 HNT, the ratio of 11.98x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
HNT’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. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure HNT has company-specific issues impacting its capital structure decisions. I recommend you continue to research Huntsworth to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HNT’s future growth? Take a look at our free research report of analyst consensus for HNT’s outlook.
- Valuation: What is HNT 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 HNT 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 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. For errors that warrant correction please contact the editor at email@example.com.