Investors are always looking for growth in small-cap stocks like Dragon Crown Group Holdings Limited (HKG:935), with a market cap of HK$854m. However, an important fact which most ignore is: how financially healthy is the business? Understanding the company’s financial health becomes crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. The following basic checks can help you get a picture of the company’s balance sheet strength. However, these checks don’t give you a full picture, so I suggest you dig deeper yourself into 935 here.
935’s Debt (And Cash Flows)
Over the past year, 935 has reduced its debt from HK$228m to HK$204m , which also accounts for long term debt. With this debt repayment, the current cash and short-term investment levels stands at HK$182m , ready to be used for running the business. Moreover, 935 has generated cash from operations of HK$146m in the last twelve months, resulting in an operating cash to total debt ratio of 72%, signalling that 935’s current level of operating cash is high enough to cover debt.
Can 935 meet its short-term obligations with the cash in hand?
Looking at 935’s HK$203m in current liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.26x. The current ratio is the number you get when you divide current assets by current liabilities. For Commercial Services 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.
Can 935 service its debt comfortably?
With debt at 18% of equity, 935 may be thought of as appropriately levered. This range is considered safe as 935 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
935’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure 935 has company-specific issues impacting its capital structure decisions. You should continue to research Dragon Crown Group Holdings to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 935’s future growth? Take a look at our free research report of analyst consensus for 935’s outlook.
- Valuation: What is 935 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 935 is currently mispriced by the market.
- 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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