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While small-cap stocks, such as The Hain Celestial Group, Inc. (NASDAQ:HAIN) with its market cap of US$2.1b, 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 HAIN is loss-making right now, it’s crucial to understand the current state of its operations and pathway to profitability. The following basic checks can help you get a picture of the company’s balance sheet strength. Nevertheless, this is just a partial view of the stock, and I recommend you dig deeper yourself into HAIN here.
Does HAIN Produce Much Cash Relative To Its Debt?
HAIN’s debt level has been constant at around US$752m over the previous year including long-term debt. At this current level of debt, HAIN’s cash and short-term investments stands at US$28m to keep the business going. Additionally, HAIN has generated US$56m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 7.5%, meaning that HAIN’s operating cash is less than its debt.
Does HAIN’s liquid assets cover its short-term commitments?
Looking at HAIN’s US$419m in current liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.16x. The current ratio is the number you get when you divide current assets by current liabilities. For Food 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 HAIN face the risk of succumbing to its debt-load?
HAIN is a relatively highly levered company with a debt-to-equity of 49%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. However, since HAIN is currently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
HAIN’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around HAIN’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure HAIN has company-specific issues impacting its capital structure decisions. You should continue to research Hain Celestial Group to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HAIN’s future growth? Take a look at our free research report of analyst consensus for HAIN’s outlook.
- Valuation: What is HAIN 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 HAIN 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.
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.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.