Is Hong Kong Television Network Limited's (HKG:1137) Balance Sheet Strong Enough To Weather A Storm?

Investors are always looking for growth in small-cap stocks like Hong Kong Television Network Limited (HKG:1137), with a market cap of HK$2.2b. However, an important fact which most ignore is: how financially healthy is the business? Given that 1137 is not presently profitable, it’s vital to evaluate the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into 1137 here.

Does 1137 produce enough cash relative to debt?

Over the past year, 1137 has ramped up its debt from HK$93m to HK$274m . With this growth in debt, 1137's cash and short-term investments stands at HK$137m 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 examine some of 1137’s operating efficiency ratios such as ROA here.

Can 1137 pay its short-term liabilities?

With current liabilities at HK$527m, the company arguably has a rather low level of current assets relative its obligations, with the current ratio last standing at 0.46x.

Does 1137 face the risk of succumbing to its debt-load?

With debt at 16% of equity, 1137 may be thought of as appropriately levered. 1137 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. 1137'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:

1137’s high cash coverage and conservative debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. But it is still important for shareholders to understand why the company isn't increasing its cheaper cost of capital to fund future growth, especially when liquidity may also be an issue. Keep in mind I haven't considered other factors such as how 1137 has been performing in the past. I suggest you continue to research Hong Kong Television Network to get a better picture of the stock by looking at:

1. Historical Performance: What has 1137'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.
2. 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.