China Jo-Jo Drugstores Inc (NASDAQ:CJJD) is a small-cap stock with a market capitalization of US$45m. 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? Consumer Retailing businesses operating in the environment facing headwinds from current disruption, in particular ones that run negative earnings, are more likely to be higher risk. So, understanding the company’s financial health becomes crucial. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into CJJD here.
Does CJJD produce enough cash relative to debt?
CJJD has sustained its debt level by about US$14m over the last 12 months made up of predominantly near term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$9m , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can examine some of CJJD’s operating efficiency ratios such as ROA here.
Does CJJD’s liquid assets cover its short-term commitments?
Looking at CJJD’s most recent US$46m liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$53m, with a current ratio of 1.15x. For Consumer Retailing companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Can CJJD service its debt comfortably?
With debt reaching 79% of equity, CJJD may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since CJJD is presently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
CJJD’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 proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how CJJD has been performing in the past. I recommend you continue to research China Jo-Jo Drugstores to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CJJD’s future growth? Take a look at our free research report of analyst consensus for CJJD’s outlook.
- Historical Performance: What has CJJD’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.
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