High Fashion International Limited (HKG:608) is a small-cap stock with a market capitalization of HK$577.6m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? So, understanding the company’s financial health becomes essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into 608 here.
How much cash does 608 generate through its operations?
608 has built up its total debt levels in the last twelve months, from HK$1.35b to HK$1.44b , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at HK$1.03b 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 608’s operating efficiency ratios such as ROA here.
Can 608 meet its short-term obligations with the cash in hand?
At the current liabilities level of HK$1.58b liabilities, it appears that the company has been able to meet these obligations given the level of current assets of HK$2.58b, with a current ratio of 1.63x. Usually, for Luxury 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.
Can 608 service its debt comfortably?
608 is a relatively highly levered company with a debt-to-equity of 57.9%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.
608’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 exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure 608 has company-specific issues impacting its capital structure decisions. I recommend you continue to research High Fashion International to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 608’s future growth? Take a look at our free research report of analyst consensus for 608’s outlook.
- Historical Performance: What has 608’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 email@example.com.