Yahoo Finance What Does Halmont Properties Corporation's (CVE:HMT) Balance Sheet Tell Us About It?
While small-cap stocks, such as Halmont Properties Corporation (CVE:HMT) with its market cap of CA$114m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Understanding the company's financial health becomes essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. 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’d encourage you to dig deeper yourself into HMT here.
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HMT’s Debt (And Cash Flows)
HMT has built up its total debt levels in the last twelve months, from CA$60m to CA$74m , which accounts for long term debt. With this increase in debt, HMT currently has CA$39k remaining in cash and short-term investments , ready to be used for running the business. Additionally, HMT has produced CA$1.2m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 1.7%, indicating that HMT’s operating cash is less than its debt.
Can HMT pay its short-term liabilities?
At the current liabilities level of CA$713k, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.77x. The current ratio is calculated by dividing current assets by current liabilities. For Real Estate companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.
Is HMT’s debt level acceptable?
With a debt-to-equity ratio of 94%, HMT can be considered as an above-average leveraged company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In HMT's case, the ratio of 2.62x suggests that interest is not strongly covered, which means that debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
Next Steps:
HMT’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 HMT's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for HMT's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Halmont Properties to get a more holistic view of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for HMT’s future growth? Take a look at our free research report of analyst consensus for HMT’s outlook.
Valuation: What is HMT 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 HMT 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.
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