Yahoo Finance Is Hastings Technology Metals Limited’s (ASX:HAS) Balance Sheet Strong Enough To Weather A Storm?
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Zero-debt allows substantial financial flexibility, especially for small-cap companies like Hastings Technology Metals Limited (ASX:HAS), as the company does not have to adhere to strict debt covenants. However, it also faces higher cost of capital given interest cost is generally lower than equity. While zero-debt makes the due diligence for potential investors less nerve-racking, it poses a new question: how should they assess the financial strength of such companies? I will go over a basic overview of the stock’s financial health, which I believe provides a ballpark estimate of their financial health status.
View our latest analysis for Hastings Technology Metals
Is HAS right in choosing financial flexibility over lower cost of capital?
Debt capital generally has lower cost of capital compared to equity funding. Though, the trade-offs are that lenders require stricter capital management requirements, in addition to having a higher claim on company assets relative to shareholders. HAS’s absence of debt on its balance sheet may be due to lack of access to cheaper capital, or it may simply believe low cost is not worth sacrificing financial flexibility. However, choosing flexibility over capital returns is logical only if it’s a high-growth company. A double-digit revenue growth of 43% is considered relatively high for a small-cap company like HAS. So, it is acceptable that the company is opting for a zero-debt capital structure currently as it may need to raise debt to fuel expansion in the future.
Can HAS meet its short-term obligations with the cash in hand?
Since Hastings Technology Metals doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term used to describe the company’s ability to meet its long-term obligations. But another important aspect of financial health is liquidity: the company’s ability to meet short-term obligations, including payments to suppliers and employees. With current liabilities at AU$7.3m, it appears that the company has been able to meet these commitments with a current assets level of AU$21m, leading to a 2.91x current account ratio. Generally, for Metals and Mining companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Next Steps:
Having no debt on the books means HAS has more financial freedom to keep growing at its current fast rate. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. In the future, its financial position may be different. I admit this is a fairly basic analysis for HAS’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Hastings Technology Metals to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for HAS’s future growth? Take a look at our free research report of analyst consensus for HAS’s outlook.
Valuation: What is HAS 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 HAS 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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