While small-cap stocks, such as Glorious Property Holdings Limited (SEHK:845) with its market cap of HK$6.86B, 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 845 is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I suggest you dig deeper yourself into 845 here.
Does 845 generate enough cash through operations?
845’s debt levels surged from CN¥26,123.1M to CN¥27,795.3M over the last 12 months – this includes both the current and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at CN¥738.9M 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 take a look at some of 845’s operating efficiency ratios such as ROA here.
Can 845 pay its short-term liabilities?
With current liabilities at CN¥34,534.9M, it seems that the business has been able to meet these obligations given the level of current assets of CN¥36,596.4M, with a current ratio of 1.06x. Usually, for Real Estate companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is 845’s debt level acceptable?
With total debt exceeding equities, 845 is considered a highly levered 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 845 is presently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
At its current level of cash flow coverage, 845 has room for improvement to better cushion for events which may require debt repayment. However, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. I admit this is a fairly basic analysis for 845’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Glorious Property Holdings to get a more holistic view of the stock by looking at:
- 1. Valuation: What is 845 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 845 is currently mispriced by the market.
- 2. Historical Performance: What has 845’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.