While small-cap stocks, such as Kandi Technologies Group Inc (NASDAQ:KNDI) with its market cap of US$249.6m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into KNDI here.
How does KNDI’s operating cash flow stack up against its debt?
KNDI has shrunken its total debt levels in the last twelve months, from US$98.8m to US$81.4m – this includes both the current and long-term debt. With this reduction in debt, KNDI’s cash and short-term investments stands at US$1.6m , ready to deploy 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. For this article’s sake, I won’t be looking at this today, but you can take a look at some of KNDI’s operating efficiency ratios such as ROA here.
Can KNDI pay its short-term liabilities?
With current liabilities at US$152.3m, it seems that the business may not have an easy time meeting these commitments with a current assets level of US$143.6m, leading to a current ratio of 0.94x.
Is KNDI’s debt level acceptable?
With debt at 33.3% of equity, KNDI may be thought of as appropriately levered. This range is considered safe as KNDI is not taking on too much debt obligation, which may be constraining for future growth.
KNDI’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. Furthermore, its lack of liquidity raises questions over current asset management practices for the small-cap. 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 better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for KNDI’s future growth? Take a look at our free research report of analyst consensus for KNDI’s outlook.
- Valuation: What is KNDI 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 KNDI is currently mispriced by the market.
- 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 firstname.lastname@example.org.