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While small-cap stocks, such as Hemisphere Media Group, Inc. (NASDAQ:HMTV) with its market cap of US$509m, 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 HMTV is loss-making right now, it’s essential to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into HMTV here.
How much cash does HMTV generate through its operations?
HMTV’s debt level has been constant at around US$206m over the previous year which accounts for long term debt. At this stable level of debt, HMTV’s cash and short-term investments stands at US$96m for investing into the business. On top of this, HMTV has produced US$27m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 13%, indicating that HMTV’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making businesses since metrics such as return on asset (ROA) requires a positive net income. In HMTV’s case, it is able to generate 0.13x cash from its debt capital.
Can HMTV meet its short-term obligations with the cash in hand?
Looking at HMTV’s US$40m in current liabilities, it appears that the company has been able to meet these commitments with a current assets level of US$147m, leading to a 3.64x current account ratio. However, a ratio above 3x may be considered excessive by some investors.
Is HMTV’s debt level acceptable?
HMTV is a relatively highly levered company with a debt-to-equity of 90%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since HMTV is currently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
HMTV’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 HMTV’s liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for HMTV’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Hemisphere Media Group to get a more holistic view of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for HMTV’s future growth? Take a look at our free research report of analyst consensus for HMTV’s outlook.
- Valuation: What is HMTV 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 HMTV 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 firstname.lastname@example.org.