HumanOptics AG (DB:H9O1) is a small-cap stock with a market capitalization of €37.70M. 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? Medical Equipment companies, especially ones that are currently loss-making, are inclined towards being higher risk. So, understanding the company’s financial health becomes essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into H9O1 here.
How does H9O1’s operating cash flow stack up against its debt?
H9O1 has sustained its debt level by about €2.91M over the last 12 months made up of current and long term debt. At this stable level of debt, H9O1 currently has €173.00K remaining in cash and short-term investments , ready to deploy into the business. Additionally, H9O1 has generated €531.00K in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 18.26%, meaning that H9O1’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for unprofitable companies since metrics such as return on asset (ROA) requires positive earnings. In H9O1’s case, it is able to generate 0.18x cash from its debt capital.
Can H9O1 pay its short-term liabilities?
Looking at H9O1’s most recent €3.04M 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 1.5x. For Medical Equipment companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can H9O1 service its debt comfortably?
H9O1 is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since H9O1 is currently unprofitable, 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.
Next Steps:
At its current level of cash flow coverage, H9O1 has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for H9O1’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research HumanOptics to get a better picture of the stock by looking at: