Veeko International Holdings Limited (HKG:1173) is a small-cap stock with a market capitalization of HK$370m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Understanding the company’s financial health becomes crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Let’s work through some financial health checks you may wish to consider if you’re interested in this stock. Nevertheless, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into 1173 here.
1173’s Debt (And Cash Flows)
1173 has sustained its debt level by about HK$276m over the last 12 months , which is mainly comprised of near term debt. At this constant level of debt, the current cash and short-term investment levels stands at HK$35m , ready to be used for running the business. Its negative operating cash flow means calculating cash-to-debt wouldn’t be useful. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of 1173’s operating efficiency ratios such as ROA here.
Does 1173’s liquid assets cover its short-term commitments?
At the current liabilities level of HK$389m, the company has been able to meet these obligations given the level of current assets of HK$677m, with a current ratio of 1.74x. The current ratio is calculated by dividing current assets by current liabilities. Generally, for Specialty Retail companies, this is a reasonable ratio since there’s a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does 1173 face the risk of succumbing to its debt-load?
1173 is a relatively highly levered company with a debt-to-equity of 41%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses.
Although 1173’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around 1173’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure 1173 has company-specific issues impacting its capital structure decisions. You should continue to research Veeko International Holdings to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 1173’s future growth? Take a look at our free research report of analyst consensus for 1173’s outlook.
- Historical Performance: What has 1173’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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.