While small-cap stocks, such as Boill Healthcare Holdings Limited (HKG:1246) with its market cap of HK$1.2b, 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 1246 is loss-making right now, it’s crucial to evaluate the current state of its operations and pathway to profitability. Let’s work through some financial health checks you may wish to consider if you’re interested in this stock. Nevertheless, this is just a partial view of the stock, and I recommend you dig deeper yourself into 1246 here.
Does 1246 Produce Much Cash Relative To Its Debt?
1246 has sustained its debt level by about HK$1.2b over the last 12 months – this includes long-term debt. At this constant level of debt, 1246 currently has HK$310m remaining in cash and short-term investments , ready to be used for running the business. Additionally, 1246 has produced cash from operations of HK$388m in the last twelve months, resulting in an operating cash to total debt ratio of 33%, meaning that 1246’s debt is appropriately covered by operating cash.
Can 1246 meet its short-term obligations with the cash in hand?
With current liabilities at HK$1.3b, the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.68x. The current ratio is calculated by dividing current assets by current liabilities.
Can 1246 service its debt comfortably?
With debt reaching 86% of equity, 1246 may be thought of as relatively highly levered. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. However, since 1246 is presently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although 1246’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. However, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for 1246’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Boill Healthcare Holdings to get a better picture 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.
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