What Investors Should Know About Starrise Media Holdings Limited’s (HKG:1616) Financial Strength
Starrise Media Holdings Limited (SEHK:1616) is a small-cap stock with a market capitalization of HK$721.57M. 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, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into 1616 here.
How does 1616’s operating cash flow stack up against its debt?
1616 has sustained its debt level by about CN¥405.0M over the last 12 months made up of current and long term debt. At this stable level of debt, 1616’s cash and short-term investments stands at CN¥198.0M , ready to deploy into the business. Moreover, 1616 has produced CN¥90.4M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 22.33%, meaning that 1616’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 1616’s case, it is able to generate 0.22x cash from its debt capital.
Can 1616 meet its short-term obligations with the cash in hand?
At the current liabilities level of CN¥440.4M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of CN¥712.2M, with a current ratio of 1.62x. Generally, for Luxury companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can 1616 service its debt comfortably?
With a debt-to-equity ratio of 57.74%, 1616 can be considered as an above-average leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In 1616’s case, the ratio of 2.43x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
Next Steps:
1616’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for 1616’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Starrise Media Holdings to get a better picture of the stock by looking at:
1. Historical Performance: What has 1616’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.
