What You Must Know About New City Development Group Limited’s (HKG:456) Financial Strength
While small-cap stocks, such as New City Development Group Limited (HKG:456) with its market cap of HK$3.5b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes crucial, as mismanagement of capital can lead to 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, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into 456 here.
How much cash does 456 generate through its operations?
456’s debt levels surged from HK$205m to HK$248m over the last 12 months , which is made up of current and long term debt. With this rise in debt, 456 currently has HK$76m remaining in cash and short-term investments 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of 456’s operating efficiency ratios such as ROA here.
Does 456’s liquid assets cover its short-term commitments?
With current liabilities at HK$59m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.98x. For Real Estate 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 456 service its debt comfortably?
456’s level of debt is appropriate relative to its total equity, at 37%. This range is considered safe as 456 is not taking on too much debt obligation, which may be constraining for future growth.
Next Steps:
456’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 456 has been performing in the past. I recommend you continue to research New City Development Group to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 456’s future growth? Take a look at our free research report of analyst consensus for 456’s outlook.
Valuation: What is 456 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 456 is currently mispriced by the market.
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.
