Want to participate in a short research study? Help shape the future of investing tools and receive a $20 prize!
Investors are always looking for growth in small-cap stocks like Hong Kong Television Network Limited (HKG:1137), with a market cap of HK$2.5b. However, an important fact which most ignore is: how financially healthy is the business? Since 1137 is loss-making right now, it’s crucial to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into 1137 here.
How much cash does 1137 generate through its operations?
1137 has built up its total debt levels in the last twelve months, from HK$93m to HK$274m , which is mainly comprised of near term debt. With this increase in debt, 1137’s cash and short-term investments stands at HK$137m for investing 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. For this article’s sake, I won’t be looking at this today, but you can assess some of 1137’s operating efficiency ratios such as ROA here.
Can 1137 meet its short-term obligations with the cash in hand?
Looking at 1137’s HK$527m in current liabilities, it seems that the business may not be able to easily meet these obligations given the level of current assets of HK$244m, with a current ratio of 0.46x.
Can 1137 service its debt comfortably?
With a debt-to-equity ratio of 16%, 1137’s debt level may be seen as prudent. 1137 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for 1137, and the company also has the ability and headroom to increase debt if needed going forward.
1137 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. But it is still important for shareholders to understand why the company isn’t increasing its cheaper cost of capital to fund future growth, especially when liquidity may also be an issue. Keep in mind I haven’t considered other factors such as how 1137 has been performing in the past. I suggest you continue to research Hong Kong Television Network to get a more holistic view of the stock by looking at:
- Historical Performance: What has 1137’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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.