Investors are always looking for growth in small-cap stocks like Havyard Group ASA (OB:HYARD), with a market cap of øre294.24m. However, an important fact which most ignore is: how financially healthy is the business? Given that HYARD is not presently profitable, it’s essential to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, this commentary is still very high-level, so I recommend you dig deeper yourself into HYARD here.
How does HYARD’s operating cash flow stack up against its debt?
HYARD’s debt levels surged from øre371.43m to øre431.21m over the last 12 months – this includes both the current and long-term debt. With this growth in debt, HYARD’s cash and short-term investments stands at øre157.61m , ready to deploy into the business. Moreover, HYARD has generated øre23.46m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 5.44%, indicating that HYARD’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making businesses since metrics such as return on asset (ROA) requires a positive net income. In HYARD’s case, it is able to generate 0.054x cash from its debt capital.
Does HYARD’s liquid assets cover its short-term commitments?
Looking at HYARD’s most recent øre931.51m liabilities, the company has been able to meet these obligations given the level of current assets of øre1.04b, with a current ratio of 1.12x. For Machinery companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does HYARD face the risk of succumbing to its debt-load?With debt reaching 87.74% of equity, HYARD may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since HYARD is presently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
At its current level of cash flow coverage, HYARD has room for improvement to better cushion for events which may require debt repayment. However, 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 HYARD’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Havyard Group to get a more holistic view of the stock by looking at:
- Historical Performance: What has HYARD’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.
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 email@example.com.