While small-cap stocks, such as Shanghai Turbo Enterprises Ltd (SGX:AWM) with its market cap of S$27m, 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 AWM is not presently profitable, it’s vital 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. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into AWM here.
How does AWM’s operating cash flow stack up against its debt?
Over the past year, AWM has borrowed debt capital of around CN¥16m made up of predominantly near term debt. With this growth in debt, the current cash and short-term investment levels stands at CN¥17m , ready to deploy 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 examine some of AWM’s operating efficiency ratios such as ROA here.
Can AWM meet its short-term obligations with the cash in hand?
Looking at AWM’s CN¥38m in current liabilities, the company has been able to meet these commitments with a current assets level of CN¥97m, leading to a 2.52x current account ratio. Generally, for Electrical companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can AWM service its debt comfortably?
With a debt-to-equity ratio of 10%, AWM’s debt level may be seen as prudent. This range is considered safe as AWM is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Risk around debt is very low for AWM, and the company also has the ability and headroom to increase debt if needed going forward.
AWM has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for AWM’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Shanghai Turbo Enterprises to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for AWM’s future growth? Take a look at our free research report of analyst consensus for AWM’s outlook.
- Historical Performance: What has AWM’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.
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