Media Asia Group Holdings Limited (SEHK:8075) is a small-cap stock with a market capitalization of HK$358.86M. 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? Given that 8075 is not presently profitable, it’s crucial 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, this commentary is still very high-level, so I suggest you dig deeper yourself into 8075 here.
Does 8075 generate an acceptable amount of cash through operations?
Over the past year, 8075 has ramped up its debt from HK$249.83M to HK$274.16M , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at HK$402.45M , 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of 8075’s operating efficiency ratios such as ROA here.
Does 8075’s liquid assets cover its short-term commitments?
At the current liabilities level of HK$647.13M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of HK$1.10B, with a current ratio of 1.71x. For Media companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can 8075 service its debt comfortably?
With debt reaching 43.68% of equity, 8075 may be thought of as relatively highly levered. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since 8075 is currently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
8075’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure 8075 has company-specific issues impacting its capital structure decisions. You should continue to research Media Asia Group Holdings to get a more holistic view of the stock by looking at:
- 1. Valuation: What is 8075 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 8075 is currently mispriced by the market.
- 2. Historical Performance: What has 8075’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.
- 3. 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.