Is Wilhelmina International, Inc. (NASDAQ:WHLM) A Financially Sound Company?

Investors are always looking for growth in small-cap stocks like Wilhelmina International, Inc. (NASDAQ:WHLM), with a market cap of US$31m. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. We’ll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, these checks don’t give you a full picture, so I’d encourage you to dig deeper yourself into WHLM here.

Does WHLM Produce Much Cash Relative To Its Debt?

WHLM’s debt levels surged from US$2.1m to US$2.6m over the last 12 months , which accounts for long term debt. With this growth in debt, WHLM’s cash and short-term investments stands at US$6.7m , ready to be used for running the business. On top of this, WHLM has generated US$3.8m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 143%, indicating that WHLM’s current level of operating cash is high enough to cover debt.

Does WHLM’s liquid assets cover its short-term commitments?

With current liabilities at US$15m, it appears that the company has been able to meet these commitments with a current assets level of US$19m, leading to a 1.3x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Commercial Services companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.

NasdaqCM:WHLM Historical Debt, March 24th 2019
NasdaqCM:WHLM Historical Debt, March 24th 2019

Can WHLM service its debt comfortably?

WHLM’s level of debt is appropriate relative to its total equity, at 10%. WHLM is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if WHLM’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 WHLM, the ratio of 13.59x suggests that interest is comfortably covered, which means that lenders may be willing to lend out more funding as WHLM’s high interest coverage is seen as responsible and safe practice.

Next Steps:

WHLM has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, 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 WHLM’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Wilhelmina International to get a more holistic view of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for WHLM’s future growth? Take a look at our free research report of analyst consensus for WHLM’s outlook.
  2. Valuation: What is WHLM 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 WHLM is currently mispriced by the market.
  3. 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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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