How Financially Strong Is Hebei Yichen Industrial Group Corporation Limited (HKG:1596)?
Investors are always looking for growth in small-cap stocks like Hebei Yichen Industrial Group Corporation Limited (HKG:1596), with a market cap of CN¥6.28b. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into 1596 here.
How much cash does 1596 generate through its operations?
1596’s debt level has been constant at around CN¥366.90m over the previous year comprising of short- and long-term debt. At this current level of debt, the current cash and short-term investment levels stands at CN¥430.99m , 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 1596’s operating efficiency ratios such as ROA here.
Can 1596 pay its short-term liabilities?
With current liabilities at CN¥805.42m, it appears that the company has been able to meet these commitments with a current assets level of CN¥2.10b, leading to a 2.6x current account ratio. For Machinery companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can 1596 service its debt comfortably?
1596’s level of debt is appropriate relative to its total equity, at 21.13%. This range is considered safe as 1596 is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether 1596 is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In 1596’s, case, the ratio of 15.07x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as 1596’s high interest coverage is seen as responsible and safe practice.
Next Steps:
Although 1596’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for 1596’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Hebei Yichen Industrial Group to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 1596’s future growth? Take a look at our free research report of analyst consensus for 1596’s outlook.
Valuation: What is 1596 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 1596 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 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.
