What You Must Know About Sinofert Holdings Limited’s (HKG:297) Financial Strength
While small-cap stocks, such as Sinofert Holdings Limited (HKG:297) with its market cap of CN¥5.90b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since 297 is loss-making right now, it’s vital to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into 297 here.
Does 297 produce enough cash relative to debt?
Over the past year, 297 has reduced its debt from CN¥6.03b to CN¥5.12b – this includes both the current and long-term debt. With this reduction in debt, 297 currently has CN¥286.82m remaining in cash and short-term investments , 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 assess some of 297’s operating efficiency ratios such as ROA here.
Can 297 meet its short-term obligations with the cash in hand?
With current liabilities at CN¥10.30b, the company has been able to meet these obligations given the level of current assets of CN¥16.57b, with a current ratio of 1.61x. Usually, for Chemicals companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does 297 face the risk of succumbing to its debt-load?
297 is a relatively highly levered company with a debt-to-equity of 77.22%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since 297 is presently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
At its current level of cash flow coverage, 297 has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure 297 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Sinofert Holdings to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 297’s future growth? Take a look at our free research report of analyst consensus for 297’s outlook.
Valuation: What is 297 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 297 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.
