Is Courage Investment Group Limited’s (SEHK:1145) Balance Sheet Strong Enough To Weather A Storm?
While small-cap stocks, such as Courage Investment Group Limited (SEHK:1145) with its market cap of HK$525.98M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since 1145 is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into 1145 here.
How does 1145’s operating cash flow stack up against its debt?
1145’s debt levels have fallen from $24.5M to $19.8M over the last 12 months , which is made up of current and long term debt. With this debt repayment, the current cash and short-term investment levels stands at $5.7M for investing into the business. However, 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 1145’s operating efficiency ratios such as ROA here.
Can 1145 meet its short-term obligations with the cash in hand?
With current liabilities at $9.7M liabilities, it seems that the business has been able to meet these commitments with a current assets level of $10.7M, leading to a 1.1x current account ratio. Generally, for shipping companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does 1145 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 69.70%, 1145 can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since 1145 is currently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
Are you a shareholder? 1145’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 exhibits an ability to meet its near term obligations should an adverse event occur. Given that its financial position may change. You should always be keeping abreast of market expectations for 1145’s future growth on our free analysis platform.
Are you a potential investor? Though near-term liquidity isn’t a concern, 1145’s large debt ratio on top of low cash coverage of debt may not be what you’re after in an investment. But, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of 1145’s track record. As a following step, you should take a look at 1145’s past performance analysis on our free platform to conclude on 1145’s financial health.
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.
