While small-cap stocks, such as Future FinTech Group Inc (NASDAQ:FTFT) with its market cap of US$57.70M, 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 FTFT is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into FTFT here.
Does FTFT generate an acceptable amount of cash through operations?
FTFT’s debt level has been constant at around US$45.89M over the previous year comprising of short- and long-term debt. At this stable level of debt, FTFT’s cash and short-term investments stands at US$4.59M , ready to deploy into the business. Moreover, FTFT has generated cash from operations of US$23.66M during the same period of time, resulting in an operating cash to total debt ratio of 51.55%, signalling that FTFT’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires positive earnings. In FTFT’s case, it is able to generate 0.52x cash from its debt capital.
Does FTFT’s liquid assets cover its short-term commitments?
Looking at FTFT’s most recent US$117.97M liabilities, it appears that the company has not been able to meet these commitments with a current assets level of US$61.99M, leading to a 0.53x current account ratio. which is under the appropriate industry ratio of 3x.
Is FTFT’s debt level acceptable?
FTFT is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since FTFT is presently 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.
Although FTFT’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. However, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for FTFT’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Future FinTech Group to get a better picture of the stock by looking at:
- Valuation: What is FTFT 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 FTFT is currently mispriced by the market.
- Historical Performance: What has FTFT’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 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.