Investors are always looking for growth in small-cap stocks like SITC International Holdings Company Limited (HKG:1308), with a market cap of HK$15.12b. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes essential, 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. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into 1308 here.
How does 1308’s operating cash flow stack up against its debt?
1308 has shrunken its total debt levels in the last twelve months, from US$416.4m to US$328.6m , which comprises of short- and long-term debt. With this debt payback, 1308 currently has US$404.9m remaining in cash and short-term investments , ready to deploy into the business. On top of this, 1308 has produced cash from operations of US$255.0m during the same period of time, resulting in an operating cash to total debt ratio of 77.6%, meaning that 1308’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 1308’s case, it is able to generate 0.78x cash from its debt capital.
Can 1308 pay its short-term liabilities?
With current liabilities at US$247.5m, it appears that the company has been able to meet these commitments with a current assets level of US$510.2m, leading to a 2.06x current account ratio. Generally, for Shipping companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does 1308 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 33.1%, 1308’s debt level may be seen as prudent. 1308 is not taking on too much debt commitment, which may be constraining for future growth.
1308’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure 1308 has company-specific issues impacting its capital structure decisions. I suggest you continue to research SITC International Holdings to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for 1308’s future growth? Take a look at our free research report of analyst consensus for 1308’s outlook.
- Valuation: What is 1308 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 1308 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.
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