Roma Group Limited (HKG:8072) is a small-cap stock with a market capitalization of HK$285.04m. 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? Given that 8072 is not presently profitable, it’s crucial 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. Though, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into 8072 here.
How much cash does 8072 generate through its operations?
8072’s debt levels surged from HK$55.76m to HK$102.31m over the last 12 months made up of predominantly near term debt. With this rise in debt, the current cash and short-term investment levels stands at HK$206.09m for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can take a look at some of 8072’s operating efficiency ratios such as ROA here.
Can 8072 meet its short-term obligations with the cash in hand?
With current liabilities at HK$125.60m, the company has been able to meet these commitments with a current assets level of HK$760.41m, leading to a 6.05x current account ratio. Though, a ratio greater than 3x may be considered as too high, as 8072 could be holding too much capital in a low-return investment environment.
Can 8072 service its debt comfortably?
With a debt-to-equity ratio of 14.44%, 8072’s debt level may be seen as prudent. 8072 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. 8072’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.Next Steps:
Although 8072’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 exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how 8072 has been performing in the past. You should continue to research Roma Group to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 8072’s future growth? Take a look at our free research report of analyst consensus for 8072’s outlook.
- Historical Performance: What has 8072’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.