While small-cap stocks, such as Dragon Crown Group Holdings Limited (HKG:935) with its market cap of HK$928m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into 935 here.
Does 935 produce enough cash relative to debt?
935’s debt levels have fallen from HK$228m to HK$204m over the last 12 months , which includes long-term debt. With this debt repayment, 935 currently has HK$182m remaining in cash and short-term investments for investing into the business. Moreover, 935 has generated cash from operations of HK$146m during the same period of time, leading to an operating cash to total debt ratio of 72%, meaning that 935’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 935’s case, it is able to generate 0.72x cash from its debt capital.
Can 935 meet its short-term obligations with the cash in hand?
Looking at 935’s HK$203m in current liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.26x. Usually, for Commercial Services companies, this is a suitable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can 935 service its debt comfortably?
With a debt-to-equity ratio of 18%, 935’s debt level may be seen as prudent. 935 is not taking on too much debt commitment, which may be constraining for future growth.
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 exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for 935’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Dragon Crown Group Holdings to get a more holistic view 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.
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.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at firstname.lastname@example.org.