While small-cap stocks, such as Havila Shipping ASA (OB:HAVI) with its market cap of ØRE212.86M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Energy Services industry, in particular ones that run negative earnings, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into HAVI here.
How does HAVI’s operating cash flow stack up against its debt?
Over the past year, HAVI has reduced its debt from ØRE5.60B to ØRE4.12B , which comprises of short- and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at ØRE238.54M for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can assess some of HAVI’s operating efficiency ratios such as ROA here.
Can HAVI meet its short-term obligations with the cash in hand?
At the current liabilities level of ØRE240.66M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.27x. Usually, for Energy Services companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does HAVI face the risk of succumbing to its debt-load?HAVI is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since HAVI is presently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
HAVI’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, 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 HAVI’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Havila Shipping to get a better picture of the stock by looking at:
- 1. Historical Performance: What has HAVI’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.
- 2. 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.