China Hanya Group Holdings Limited (HKG:8312) is a small-cap stock with a market capitalization of HK$225.70m. 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? Given that 8312 is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into 8312 here.
How much cash does 8312 generate through its operations?
Over the past year, 8312 has borrowed debt capital of around HK$5.89m made up of predominantly near term debt. With this increase in debt, 8312’s cash and short-term investments stands at HK$15.48m 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 assess 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, the company has been able to meet these commitments with a current assets level of HK$34.17m, leading to a 1.8x current account ratio. For Retail Distributors companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is 8312’s debt level acceptable?With a debt-to-equity ratio of 62.06%, 8312 can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since 8312 is presently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
8312’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, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for 8312’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research China Hanya Group Holdings to get a better picture of the stock by looking at:
- 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.
- 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.