While small-cap stocks, such as Hastings Technology Metals Limited (ASX:HAS) with its market cap of A$234.91M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that HAS is not presently profitable, it’s essential to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, since I only look at basic financial figures, I recommend you dig deeper yourself into HAS here.
Does HAS generate enough cash through operations?
Over the past year, HAS has ramped up its debt from A$0.5M to A$0.5M , which is mainly comprised of near term debt. With this increase in debt, HAS currently has A$4.3M remaining in cash and short-term investments , ready to deploy into the business. Moreover, HAS has generated cash from operations of A$1.3M in the last twelve months, resulting in an operating cash to total debt ratio of 2.36x, indicating that HAS’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires positive earnings. In HAS’s case, it is able to generate 2.36x cash from its debt capital.
Can HAS pay its short-term liabilities?
At the current liabilities level of A$3.3M liabilities, the company has been able to meet these commitments with a current assets level of A$4.7M, leading to a 1.42x current account ratio. Generally, for metals and mining companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is HAS’s level of debt at an acceptable level?
With debt at 1.27% of equity, HAS may be thought of as having low leverage. HAS is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is extremely low for HAS, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
Are you a shareholder? HAS’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Going forward, HAS’s financial situation may change. You should always be keeping on top of market expectations for HAS’s future growth on our free analysis platform.