While small-cap stocks, such as Bonso Electronics International Inc. (NASDAQ:BNSO) with its market cap of US$13m, 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. The following basic checks can help you get a picture of the company’s balance sheet strength. However, these checks don’t give you a full picture, so I’d encourage you to dig deeper yourself into BNSO here.
Does BNSO Produce Much Cash Relative To Its Debt?
BNSO’s debt levels surged from US$583k to US$2.8m over the last 12 months , which includes long-term debt. With this growth in debt, BNSO currently has US$8.8m remaining in cash and short-term investments to keep the business going. Additionally, BNSO has produced US$2.8m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 101%, meaning that BNSO’s current level of operating cash is high enough to cover debt.
Can BNSO pay its short-term liabilities?
With current liabilities at US$4.4m, it appears that the company has been able to meet these commitments with a current assets level of US$11m, leading to a 2.61x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Electronic companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can BNSO service its debt comfortably?
With debt at 16% of equity, BNSO may be thought of as appropriately levered. This range is considered safe as BNSO is not taking on too much debt obligation, which may be constraining for future growth.
BNSO has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure BNSO has company-specific issues impacting its capital structure decisions. I recommend you continue to research Bonso Electronics International to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for BNSO’s future growth? Take a look at our free research report of analyst consensus for BNSO’s outlook.
- Valuation: What is BNSO 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 BNSO is currently mispriced by the market.
- 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 email@example.com. 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.