Jiyi Household International Holdings Limited (HKG:1495) is a small-cap stock with a market capitalization of HK$454m. 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? Evaluating financial health as part of your investment thesis is essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into 1495 here.
How much cash does 1495 generate through its operations?
Over the past year, 1495 has ramped up its debt from CN¥94m to CN¥107m . With this rise in debt, 1495 currently has CN¥63m remaining in cash and short-term investments for investing 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 1495’s operating efficiency ratios such as ROA here.
Can 1495 meet its short-term obligations with the cash in hand?
Looking at 1495’s most recent CN¥204m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.31x. For Trade Distributors companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Does 1495 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 31%, 1495’s debt level may be seen as prudent. 1495 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if 1495’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For 1495, the ratio of 3.99x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Although 1495’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how 1495 has been performing in the past. I suggest you continue to research Jiyi Household International Holdings to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 1495’s future growth? Take a look at our free research report of analyst consensus for 1495’s outlook.
- Historical Performance: What has 1495’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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