How Financially Strong Is Sling Group Holdings limited (HKG:8285)?

Investors are always looking for growth in small-cap stocks like Sling Group Holdings limited (SEHK:8285), with a market cap of HK$182.70M. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company's financial health becomes essential, as mismanagement of capital can lead to 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 8285 here.

How does 8285’s operating cash flow stack up against its debt?

Over the past year, 8285 has ramped up its debt from CN¥26.3M to CN¥34.6M made up of predominantly near term debt. With this growth in debt, 8285's cash and short-term investments stands at CN¥20.2M , ready to deploy into the business. On top of this, 8285 has generated cash from operations of CN¥5.3M in the last twelve months, leading to an operating cash to total debt ratio of 15.23%, meaning that 8285’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 8285’s case, it is able to generate 0.15x cash from its debt capital.

Can 8285 pay its short-term liabilities?

Looking at 8285’s most recent CN¥69.6M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.28x. For Luxury companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Can 8285 service its debt comfortably?

With total debt exceeding equities, 8285 is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In 8285's case, the ratio of 27.97x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as 8285’s high interest coverage is seen as responsible and safe practice.

Next Steps:

8285’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, its high liquidity means the company should continue to operate smoothly in the case of adverse events. I admit this is a fairly basic analysis for 8285's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Sling Group Holdings to get a more holistic view of the stock by looking at:

1. Valuation: What is 8285 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 8285 is currently mispriced by the market.

2. Historical Performance: What has 8285'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.

3. 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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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.