Shineco Inc (NASDAQ:TYHT) is a small-cap stock with a market capitalization of US$40.34M. 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? So, understanding the company’s financial health becomes 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, I know these factors are very high-level, so I suggest you dig deeper yourself into TYHT here.
How does TYHT’s operating cash flow stack up against its debt?
TYHT has sustained its debt level by about US$2.66M over the last 12 months . At this current level of debt, the current cash and short-term investment levels stands at US$23.31M , 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. 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 TYHT’s operating efficiency ratios such as ROA here.
Can TYHT pay its short-term liabilities?
At the current liabilities level of US$5.03M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 8.89x. Though, anything about 3x may be excessive, since TYHT may be leaving too much capital in low-earning investments.
Does TYHT face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 1.69%, TYHT’s debt level is relatively low. TYHT is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can test if TYHT’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For TYHT, the ratio of 140x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving TYHT ample headroom to grow its debt facilities.
TYHT’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for TYHT’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Shineco to get a better picture of the stock by looking at:
- Valuation: What is TYHT 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 TYHT is currently mispriced by the market.
- Historical Performance: What has TYHT’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 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.