What You Must Know About Beijing Properties (Holdings) Limited’s (HKG:925) Financial Strength
Beijing Properties (Holdings) Limited (HKG:925) is a small-cap stock with a market capitalization of HK$2.71b. 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? Assessing first and foremost the financial health is essential, 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, since I only look at basic financial figures, I suggest you dig deeper yourself into 925 here.
How much cash does 925 generate through its operations?
Over the past year, 925 has ramped up its debt from HK$5.01b to HK$7.71b – this includes both the current and long-term debt. With this rise in debt, 925’s cash and short-term investments stands at HK$1.63b for investing into the business. Moreover, 925 has generated cash from operations of HK$98.69m in the last twelve months, leading to an operating cash to total debt ratio of 1.28%, meaning that 925’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 925’s case, it is able to generate 0.013x cash from its debt capital.
Can 925 meet its short-term obligations with the cash in hand?
Looking at 925’s most recent HK$3.66b liabilities, it appears that the company has not been able to meet these commitments with a current assets level of HK$2.63b, leading to a 0.72x current account ratio. which is under the appropriate industry ratio of 3x.
Can 925 service its debt comfortably?
925 is a highly-leveraged company with debt exceeding equity by over 100%. 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 925’s case, the ratio of 0.43x 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:
With a high level of debt on its balance sheet, 925 could still be in a financially strong position if its cash flow also stacked up. However, this isn’t the case, and there’s room for 925 to increase its operational efficiency. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for 925’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Beijing Properties (Holdings) to get a more holistic view of the stock by looking at:
Historical Performance: What has 925’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.
