What You Must Know About KuangChi Science Limited’s (HKG:439) Financial Strength
While small-cap stocks, such as KuangChi Science Limited (HKG:439) with its market cap of HK$4.06b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into 439 here.
How much cash does 439 generate through its operations?
439 has built up its total debt levels in the last twelve months, from HK$270.73m to HK$396.19m , which is made up of current and long term debt. With this increase in debt, the current cash and short-term investment levels stands at HK$967.60m , 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 take a look at some of 439’s operating efficiency ratios such as ROA here.
Can 439 meet its short-term obligations with the cash in hand?
At the current liabilities level of HK$279.21m liabilities, it seems that the business has been able to meet these commitments with a current assets level of HK$1.42b, leading to a 5.08x current account ratio. However, anything about 3x may be excessive, since 439 may be leaving too much capital in low-earning investments.
Is 439’s debt level acceptable?
With debt at 15.63% of equity, 439 may be thought of as appropriately levered. 439 is not taking on too much debt commitment, which may be constraining for future growth.
Next Steps:
439’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. I admit this is a fairly basic analysis for 439’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research KuangChi Science to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 439’s future growth? Take a look at our free research report of analyst consensus for 439’s outlook.
Valuation: What is 439 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 439 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.
