What You Must Know About Chinney Alliance Group Limited’s (HKG:385) Financial Strength
While small-cap stocks, such as Chinney Alliance Group Limited (SEHK:385) with its market cap of HK$874.50M, 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 suggest you dig deeper yourself into 385 here.
How does 385’s operating cash flow stack up against its debt?
385 has shrunken its total debt levels in the last twelve months, from HK$178.19M to HK$141.36M – this includes both the current and long-term debt. With this debt repayment, the current cash and short-term investment levels stands at HK$963.44M , ready to deploy into the business. Moreover, 385 has generated HK$183.16M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 129.58%, indicating that 385’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 385’s case, it is able to generate 1.3x cash from its debt capital.
Does 385’s liquid assets cover its short-term commitments?
At the current liabilities level of HK$1.61B liabilities, it appears that the company has been able to meet these obligations given the level of current assets of HK$2.37B, with a current ratio of 1.47x. Generally, for Construction companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is 385’s debt level acceptable?
385’s level of debt is appropriate relative to its total equity, at 13.57%. This range is considered safe as 385 is not taking on too much debt obligation, which may be constraining for future growth.
Next Steps:
385 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how 385 has been performing in the past. I suggest you continue to research Chinney Alliance Group to get a more holistic view of the stock by looking at:
1. Historical Performance: What has 385’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.
2. 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.