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While small-cap stocks, such as Heeros Oyj (HLSE:HEEROS) with its market cap of €9.57M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Internet companies, in particular ones that run negative earnings, are inclined towards being higher risk. Assessing first and foremost the financial health is vital. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into HEEROS here.
Does HEEROS generate an acceptable amount of cash through operations?
HEEROS’s debt levels have fallen from €1.63M to €1.26M over the last 12 months , which is made up of current and long term debt. With this debt payback, HEEROS’s cash and short-term investments stands at €2.26M for investing into the business. On top of this, HEEROS has produced €157.63K in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 12.50%, indicating that HEEROS’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires positive earnings. In HEEROS’s case, it is able to generate 0.12x cash from its debt capital.
Can HEEROS meet its short-term obligations with the cash in hand?
Looking at HEEROS’s most recent €2.37M liabilities, the company has been able to meet these commitments with a current assets level of €3.25M, leading to a 1.37x current account ratio. Generally, for Internet companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does HEEROS face the risk of succumbing to its debt-load?
With debt at 37.49% of equity, HEEROS may be thought of as appropriately levered. HEEROS is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for HEEROS, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
HEEROS’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for HEEROS’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Heeros Oyj to get a better picture of the stock by looking at: