While small-cap stocks, such as China Hanya Group Holdings Limited (SEHK:8312) with its market cap of HK$218.30M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since 8312 is loss-making right now, it’s vital to understand 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. However, I know these factors are very high-level, so I suggest you dig deeper yourself into 8312 here.
Does 8312 generate enough cash through operations?
Over the past year, 8312 has borrowed debt capital of around HK$5.89M . With this growth in debt, 8312 currently has HK$15.48M remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. 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 8312’s operating efficiency ratios such as ROA here.
Does 8312’s liquid assets cover its short-term commitments?
With current liabilities at HK$19.00M, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.8x. Generally, for Retail Distributors companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does 8312 face the risk of succumbing to its debt-load?With a debt-to-equity ratio of 35.36%, 8312’s debt level may be seen as prudent. 8312 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. 8312’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.
Although 8312’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for 8312’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research China Hanya Group Holdings to get a better picture of the stock by looking at:
- 1. Historical Performance: What has 8312’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.