What does HJ Capital (International) Holdings Company Limited’s (HKG:982) Balance Sheet Tell Us About Its Future?
While small-cap stocks, such as HJ Capital (International) Holdings Company Limited (HKG:982) with its market cap of HK$955.8m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that 982 is not presently profitable, it’s crucial to assess 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. However, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into 982 here.
Does 982 produce enough cash relative to debt?
982’s debt levels surged from HK$37.2m to HK$110.0m over the last 12 months . With this rise in debt, 982 currently has HK$124.9m remaining in cash and short-term investments , ready to deploy 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. 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 982’s operating efficiency ratios such as ROA here.
Can 982 meet its short-term obligations with the cash in hand?
Looking at 982’s most recent HK$190.5m liabilities, it appears that the company has been able to meet these commitments with a current assets level of HK$283.5m, leading to a 1.49x current account ratio. Usually, for Commercial Services companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is 982’s debt level acceptable?
With debt reaching 66.7% of equity, 982 may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since 982 is currently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
982’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. I admit this is a fairly basic analysis for 982’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research HJ Capital (International) Holdings to get a more holistic view of the stock by looking at:
Historical Performance: What has 982’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 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.
