Investors are always looking for growth in small-cap stocks like China Greenland Broad Greenstate Group Company Limited (SEHK:1253), with a market cap of HK$3.81B. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. 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’d encourage you to dig deeper yourself into 1253 here.
Does 1253 generate enough cash through operations?
Over the past year, 1253 has ramped up its debt from CN¥277.83M to CN¥405.18M made up of predominantly near term debt. With this increase in debt, the current cash and short-term investment levels stands at CN¥187.58M 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 1253’s operating efficiency ratios such as ROA here.
Does 1253’s liquid assets cover its short-term commitments?
Looking at 1253’s most recent CN¥1.15B liabilities, the company has been able to meet these commitments with a current assets level of CN¥1.27B, leading to a 1.1x current account ratio. Generally, for Commercial Services companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does 1253 face the risk of succumbing to its debt-load?
With debt reaching 59.83% of equity, 1253 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. We can test if 1253’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For 1253, the ratio of 11.73x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving 1253 ample headroom to grow its debt facilities.
1253’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for 1253’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research China Greenland Broad Greenstate Group to get a better picture of the stock by looking at:
- 1. Valuation: What is 1253 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 1253 is currently mispriced by the market.
- 2. Historical Performance: What has 1253’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.
- 3. 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.