GET Holdings Limited (SEHK:8100) is a small-cap stock with a market capitalization of HK$164.45M. 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? Software companies, especially ones that are currently loss-making, are inclined towards being higher risk. Assessing first and foremost the financial health is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into 8100 here.
Does 8100 generate enough cash through operations?
Over the past year, 8100 has maintained its debt levels at around HK$281.8M comprising of short- and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at HK$611.2M , ready to deploy into the business. However, 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 8100’s operating efficiency ratios such as ROA here.
Can 8100 pay its short-term liabilities?
Looking at 8100’s most recent HK$360.8M liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.87x. Generally, for software companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does 8100 face the risk of succumbing to its debt-load?
With debt at 17.36% of equity, 8100 may be thought of as appropriately levered. This range is considered safe as 8100 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. 8100’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
Are you a shareholder? 8100 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. Going forward, its financial position may change. I recommend keeping abreast of market expectations for 8100’s future growth on our free analysis platform.