Kandi Technologies Group Inc (NASDAQ:KNDI) is a small-cap stock with a market capitalization of US$266.60M. 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? Since KNDI is loss-making right now, it’s vital to assess 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, since I only look at basic financial figures, I suggest you dig deeper yourself into KNDI here.
Does KNDI generate an acceptable amount of cash through operations?
KNDI’s debt levels surged from US$40.51M to US$77.86M over the last 12 months – this includes both the current and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at US$16.70M for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 KNDI’s operating efficiency ratios such as ROA here.
Can KNDI meet its short-term obligations with the cash in hand?
With current liabilities at US$177.68M, the company has been able to meet these obligations given the level of current assets of US$264.03M, with a current ratio of 1.49x. Generally, for Auto Components companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does KNDI face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 41.73%, KNDI can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. Though, since KNDI is currently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
KNDI’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how KNDI has been performing in the past. I recommend you continue to research Kandi Technologies Group to get a more holistic view of the stock by looking at:
- 1. Historical Performance: What has KNDI’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.
- 2. 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.