Boill Healthcare Holdings Limited (HKG:1246) is a small-cap stock with a market capitalization of HK$608m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Since 1246 is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, this commentary is still very high-level, so I suggest you dig deeper yourself into 1246 here.
How does 1246’s operating cash flow stack up against its debt?
Over the past year, 1246 has ramped up its debt from HK$853m to HK$1.2b , which is made up of current and long term debt. With this growth in debt, 1246’s cash and short-term investments stands at HK$225m for investing into the business. On top of this, 1246 has generated cash from operations of HK$297m in the last twelve months, leading to an operating cash to total debt ratio of 25%, signalling that 1246’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires a positive net income. In 1246’s case, it is able to generate 0.25x cash from its debt capital.
Can 1246 meet its short-term obligations with the cash in hand?
With current liabilities at HK$1.1b, it seems that the business may not have an easy time meeting these commitments with a current assets level of HK$926m, leading to a current ratio of 0.81x.
Does 1246 face the risk of succumbing to its debt-load?
1246 is a relatively highly levered company with a debt-to-equity of 78%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since 1246 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.
1246’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. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how 1246 has been performing in the past. I suggest you continue to research Boill Healthcare Holdings to get a more holistic view of the stock by looking at:
- Valuation: What is 1246 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 1246 is currently mispriced by the market.
- Historical Performance: What has 1246’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.
- 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 past 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.
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