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Is Ambow Education Holding Ltd’s (NYSEMKT:AMBO) Balance Sheet Strong Enough To Weather A Storm?

While small-cap stocks, such as Ambow Education Holding Ltd (NYSEMKT:AMBO) with its market cap of US$111m, 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 crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into AMBO here.

Does AMBO produce enough cash relative to debt?

Over the past year, AMBO has reduced its debt from CN¥48m to CN¥43m – this includes both the current and long-term debt. With this reduction in debt, AMBO currently has CN¥382m remaining in cash and short-term investments for investing 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. For this article’s sake, I won’t be looking at this today, but you can examine some of AMBO’s operating efficiency ratios such as ROA here.

Can AMBO pay its short-term liabilities?

Looking at AMBO’s most recent CN¥703m liabilities, it seems that the business may not be able to easily meet these obligations given the level of current assets of CN¥591m, with a current ratio of 0.84x.

AMEX:AMBO Historical Debt October 22nd 18
AMEX:AMBO Historical Debt October 22nd 18

Can AMBO service its debt comfortably?

AMBO’s level of debt is appropriate relative to its total equity, at 18%. AMBO is not taking on too much debt commitment, which may be constraining for future growth.

Next Steps:

AMBO’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Furthermore, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for AMBO’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Ambow Education Holding to get a more holistic view of the stock by looking at:

  1. Historical Performance: What has AMBO’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.

To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.

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