Investors are always looking for growth in small-cap stocks like SEACOR Marine Holdings Inc (NYSE:SMHI), with a market cap of US$323.96M. However, an important fact which most ignore is: how financially healthy is the business? Energy Services companies, in particular ones that run negative earnings, are inclined towards being higher risk. Assessing first and foremost the financial health is essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into SMHI here.

Does SMHI generate enough cash through operations?

Over the past year, SMHI has ramped up its debt from US$238.28M to US$314.97M , which is made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at US$110.65M for investing into the business. On top of this, SMHI has generated US$34.74M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 11.03%, indicating that SMHI’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires a positive net income. In SMHI’s case, it is able to generate 0.11x cash from its debt capital.

Can SMHI pay its short-term liabilities?

At the current liabilities level of US$99.22M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.79x. Usually, for Energy Services companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Is SMHI’s debt level acceptable?

With debt reaching 60.20% of equity, SMHI may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since SMHI is currently unprofitable, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.

Next Steps:

SMHI’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for SMHI’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research SEACOR Marine Holdings to get a better picture of the stock by looking at:

• 1. Future Outlook: What are well-informed industry analysts predicting for SMHI’s future growth? Take a look at our free research report of analyst consensus for SMHI’s outlook.

• 2. Historical Performance: What has SMHI’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.

• 3. 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.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.