Boill Healthcare Holdings Limited (SEHK:1246) is a small-cap stock with a market capitalization of HK$1.12B. 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 essential to assess the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into 1246 here.
Does 1246 generate an acceptable amount of cash through operations?
Over the past year, 1246 has reduced its debt from HK$1.23B to HK$851.77M , which comprises of short- and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at HK$536.39M , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of 1246’s operating efficiency ratios such as ROA here.
Does 1246’s liquid assets cover its short-term commitments?
Looking at 1246’s most recent HK$1.14B liabilities, the company has been able to meet these obligations given the level of current assets of HK$1.72B, with a current ratio of 1.51x. For Construction companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can 1246 service its debt comfortably?1246 is a relatively highly levered company with a debt-to-equity of 74.42%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since 1246 is presently unprofitable, 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.
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. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how 1246 has been performing in the past. I recommend you continue to research Boill Healthcare Holdings to get a more holistic view of the stock by looking at:
- 1. 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.
- 2. 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.
- 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.