Investors are always looking for growth in small-cap stocks like IR Resources Limited (SEHK:8186), with a market cap of HK$69.83M. However, an important fact which most ignore is: how financially healthy is the business? Given that 8186 is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I suggest you dig deeper yourself into 8186 here.
Does 8186 generate an acceptable amount of cash through operations?
Over the past year, 8186 has reduced its debt from HK$122.8M to HK$13.8M . With this debt payback, 8186’s cash and short-term investments stands at HK$89.3M , ready to deploy into the business. Though its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can assess some of 8186’s operating efficiency ratios such as ROA here.
Can 8186 pay its short-term liabilities?
At the current liabilities level of HK$53.4M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of HK$93.6M, with a current ratio of 1.75x. Usually, for forestry companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is 8186’s level of debt at an acceptable level?
With a debt-to-equity ratio of 14.95%, 8186’s debt level may be seen as prudent. This range is considered safe as 8186 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with 8186, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
Are you a shareholder? 8186’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Given that its financial position may be different. I suggest keeping abreast of market expectations for 8186’s future growth on our free analysis platform.
Are you a potential investor? IR Resources currently has financial flexibility to ramp up growth in the future. Moreover, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. To gain more confidence in the stock, you need to further examine the company’s track record. As a following step, you should take a look at 8186’s past performance analysis on our free platform to figure out 8186’s financial health position.
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.