Is Kin Shing Holdings Limited’s (HKG:1630) Balance Sheet Strong Enough To Weather A Storm?
While small-cap stocks, such as Kin Shing Holdings Limited (HKG:1630) with its market cap of HK$960.00m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is crucial, since poor capital management may bring about 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 recommend you dig deeper yourself into 1630 here.
How much cash does 1630 generate through its operations?
1630 has built up its total debt levels in the last twelve months, from HK$27.78m to HK$41.72m , which is mainly comprised of near term debt. With this increase in debt, the current cash and short-term investment levels stands at HK$92.75m 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. For this article’s sake, I won’t be looking at this today, but you can examine some of 1630’s operating efficiency ratios such as ROA here.
Does 1630’s liquid assets cover its short-term commitments?
At the current liabilities level of HK$117.61m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of HK$300.10m, with a current ratio of 2.55x. For Construction companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is 1630’s debt level acceptable?
With a debt-to-equity ratio of 20.39%, 1630’s debt level may be seen as prudent. 1630 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether 1630 is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In 1630’s, case, the ratio of 48.54x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
1630’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 exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for 1630’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Kin Shing Holdings to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 1630’s future growth? Take a look at our free research report of analyst consensus for 1630’s outlook.
Historical Performance: What has 1630’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 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 editorial-team@simplywallst.com.
