Is Tomson Group Limited’s (HKG:258) Balance Sheet Strong Enough To Weather A Storm?
Investors are always looking for growth in small-cap stocks like Tomson Group Limited (HKG:258), with a market cap of HK$5.0b. However, an important fact which most ignore is: how financially healthy is the business? 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. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into 258 here.
How does 258’s operating cash flow stack up against its debt?
258 has sustained its debt level by about HK$1.5b over the last 12 months which accounts for long term debt. At this constant level of debt, the current cash and short-term investment levels stands at HK$4.1b , ready to deploy into the business. On top of this, 258 has generated cash from operations of HK$593m in the last twelve months, resulting in an operating cash to total debt ratio of 39%, meaning that 258’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 258’s case, it is able to generate 0.39x cash from its debt capital.
Can 258 meet its short-term obligations with the cash in hand?
At the current liabilities level of HK$6.2b, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.84x. Generally, for Real Estate companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can 258 service its debt comfortably?
258’s level of debt is appropriate relative to its total equity, at 11%. 258 is not taking on too much debt commitment, which may be constraining for future growth.
Next Steps:
258’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure 258 has company-specific issues impacting its capital structure decisions. You should continue to research Tomson Group to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 258’s future growth? Take a look at our free research report of analyst consensus for 258’s outlook.
Valuation: What is 258 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 258 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.
