While small-cap stocks, such as BioHiTech Global Inc (NASDAQ:BHTG) with its market cap of US$60.54m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since BHTG is loss-making right now, it’s essential to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into BHTG here.
How does BHTG’s operating cash flow stack up against its debt?
Over the past year, BHTG has reduced its debt from US$14.48m to US$5.72m , which comprises of short- and long-term debt. With this debt payback, BHTG's cash and short-term investments stands at US$1.05m 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of BHTG’s operating efficiency ratios such as ROA here.
Can BHTG pay its short-term liabilities?
At the current liabilities level of US$2.78m liabilities, it appears that the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.83x, which is below the prudent industry ratio of 3x.
Does BHTG face the risk of succumbing to its debt-load?
Since total debt levels have outpaced equities, BHTG is a highly leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since BHTG 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.Next Steps:
BHTG’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for BHTG's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research BioHiTech Global to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BHTG’s future growth? Take a look at our free research report of analyst consensus for BHTG’s outlook.
- Valuation: What is BHTG 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 BHTG 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 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 editorial-team@simplywallst.com.
Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.