What Investors Should Know About Boill Healthcare Holdings Limited’s (HKG:1246) Financial Strength

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.

SEHK:1246 Historical Debt Apr 5th 18
SEHK:1246 Historical Debt Apr 5th 18

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.

Next Steps:

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: