While small-cap stocks, such as Tomson Group Limited (SEHK:258) with its market cap of HK$6.32B, 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 vital, since poor capital management may bring about 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, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into 258 here.
Does 258 generate enough cash through operations?
258’s debt levels have fallen from HK$1.85B to HK$797.22M over the last 12 months , which is made up of current and long term debt. With this debt payback, 258’s cash and short-term investments stands at HK$3.69B , ready to deploy into the business. Additionally, 258 has produced HK$1.68B in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 210.17%, meaning that 258’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 258’s case, it is able to generate 2.1x cash from its debt capital.
Can 258 pay its short-term liabilities?
At the current liabilities level of HK$6.34B liabilities, the company has been able to meet these obligations given the level of current assets of HK$11.81B, with a current ratio of 1.86x. Usually, for Real Estate companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can 258 service its debt comfortably?With debt at 5.90% of equity, 258 may be thought of as having low leverage. This range is considered safe as 258 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
258’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for 258’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Tomson Group to get a more holistic view of the stock by looking at:
- Valuation: What is 258 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 258 is currently mispriced by the market.
- Historical Performance: What has 258’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.