Be Heard Group plc (AIM:BHRD) is a small-cap stock with a market capitalization of UK£21.86M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Since BHRD is loss-making right now, it’s essential to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into BHRD here.
Does BHRD generate enough cash through operations?
BHRD’s debt levels surged from UK£175.06K to UK£5.01M over the last 12 months – this includes both the current and long-term debt. With this growth in debt, BHRD’s cash and short-term investments stands at UK£3.11M for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can take a look at some of BHRD’s operating efficiency ratios such as ROA here.
Can BHRD pay its short-term liabilities?
With current liabilities at UK£15.98M, it seems that the business is not able to meet these obligations given the level of current assets of UK£13.53M, with a current ratio of 0.85x below the prudent level of 3x.
Does BHRD face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 20.80%, BHRD’s debt level may be seen as prudent. This range is considered safe as BHRD is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for BHRD, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
BHRD’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. Furthermore, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for BHRD’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Be Heard Group to get a more holistic view of the stock by looking at: