While small-cap stocks, such as Beijing Urban Construction Design & Development Group Co Limited (SEHK:1599) with its market cap of HK$5.31B, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. 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 suggest you dig deeper yourself into 1599 here.
Does 1599 generate enough cash through operations?
Over the past year, 1599 has ramped up its debt from CN¥1.88B to CN¥3.31B , which is made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at CN¥3.38B , ready to deploy into the business. On top of this, 1599 has generated CN¥233.79M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 7.07%, meaning that 1599’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 1599’s case, it is able to generate 0.071x cash from its debt capital.
Does 1599’s liquid assets cover its short-term commitments?
With current liabilities at CN¥6.72B, the company has been able to meet these commitments with a current assets level of CN¥9.36B, leading to a 1.39x current account ratio. For Construction companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can 1599 service its debt comfortably?
With debt reaching 79.06% of equity, 1599 may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses.
1599’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 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 1599 has company-specific issues impacting its capital structure decisions. You should continue to research Beijing Urban Construction Design & Development Group to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 1599’s future growth? Take a look at our free research report of analyst consensus for 1599’s outlook.
- Valuation: What is 1599 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 1599 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.
To help readers see pass 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.