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While small-cap stocks, such as Bonso Electronics International Inc (NASDAQ:BNSO) with its market cap of US$15.59M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Electronic companies, even ones that are profitable, tend to be high risk. Evaluating financial health as part of your investment thesis is crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into BNSO here.
How does BNSO’s operating cash flow stack up against its debt?
Over the past year, BNSO has reduced its debt from US$2.23M to US$583.00K , which comprises of short- and long-term debt. With this debt repayment, BNSO’s cash and short-term investments stands at US$3.91M , ready to deploy into the business. Moreover, BNSO has produced cash from operations of US$3.15M during the same period of time, resulting in an operating cash to total debt ratio of 539.45%, signalling that BNSO’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In BNSO’s case, it is able to generate 5.39x cash from its debt capital.
Can BNSO pay its short-term liabilities?
At the current liabilities level of US$5.24M liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$7.74M, leading to a 1.48x current account ratio. Generally, for Electronic companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is BNSO’s debt level acceptable?
BNSO’s level of debt is low relative to its total equity, at 2.24%. This range is considered safe as BNSO is not taking on too much debt obligation, which may be constraining for future growth.
BNSO’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how BNSO has been performing in the past. I recommend you continue to research Bonso Electronics International to get a better picture of the stock by looking at:
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.
Historical Performance: What has BNSO’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.
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.