Kandi Technologies Group Inc (NASDAQ:KNDI) is a small-cap stock with a market capitalization of US$303.51M. 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 essential to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into KNDI here.
Does KNDI generate enough cash through operations?
KNDI’s debt levels surged from US$77.86M to US$91.86M over the last 12 months – this includes both the current and long-term debt. With this rise in debt, KNDI currently has US$4.89M remaining in cash and short-term investments 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 KNDI’s operating efficiency ratios such as ROA here.
Can KNDI meet its short-term obligations with the cash in hand?
Looking at KNDI’s most recent US$184.60M liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.29x. For Auto Components companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Can KNDI service its debt comfortably?
KNDI’s level of debt is appropriate relative to its total equity, at 30.22%. KNDI is not taking on too much debt commitment, which may be constraining for future growth. KNDI’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
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. This is only a rough assessment of financial health, and I’m sure KNDI has company-specific issues impacting its capital structure decisions. You should continue to research Kandi Technologies Group to get a better picture of the stock by looking at:
- 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.
- 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.
- 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.