While small-cap stocks, such as Wilhelmina International Inc (NASDAQ:WHLM) with its market cap of $36.16M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since WHLM is loss-making right now, it’s vital to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into WHLM here.

How does WHLM’s operating cash flow stack up against its debt?

WHLM has increased its debt level by about $2.6M over the last 12 months made up of current and long term debt. With this ramp up in debt, WHLM currently has $5.7M remaining in cash and short-term investments for investing into the business. Moreover, WHLM has produced cash from operations of $2.9M during the same period of time, leading to an operating cash to total debt ratio of 109.10%, indicating that WHLM’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency for loss making businesses since metrics such as return on asset (ROA) requires positive earnings. In WHLM’s case, it is able to generate 1.09x cash from its debt capital.

Can WHLM pay its short-term liabilities?

With current liabilities at $19.6M, it appears that the company has been able to meet these commitments with a current assets level of $24.6M, leading to a 1.26x current account ratio. Usually, for Commercial Services companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

Can WHLM service its debt comfortably?

WHLM’s level of debt is low relative to its total equity, at 8.79%. WHLM is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is virtually non-existent with WHLM, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Next Steps:

WHLM’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how WHLM has been performing in the past. You should continue to research Wilhelmina International to get a better picture of the stock by looking at:

• 1. Valuation: What is WHLM 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 WHLM is currently mispriced by the market.

• 2. Historical Performance: What has WHLM’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.