Investors are always looking for growth in small-cap stocks like HLH Group Limited (SGX:H27), with a market cap of SGD39.95M. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into H27 here.
How does H27’s operating cash flow stack up against its debt?
Over the past year, H27 has reduced its debt from SGD14.3M to SGD6.3M – this includes both the current and long-term debt. With this debt payback, H27’s cash and short-term investments stands at SGD6.9M , ready to deploy into the business. Though 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 take a look at some of H27’s operating efficiency ratios such as ROA here.
Does H27’s liquid assets cover its short-term commitments?
At the current liabilities level of SGD4.5M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 8.15x. Though, a ratio greater than 3x may be considered as too high, as H27 could be holding too much capital in a low-return investment environment.
Can H27 service its debt comfortably?
With debt at 5.96% of equity, H27 may be thought of as having low leverage. H27 is not taking on too much debt commitment, which may be constraining for future growth.
Next Steps:
Are you a shareholder? Although H27’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Given that H27’s financial situation may change. You should always be researching market expectations for H27’s future growth on our free analysis platform.
Are you a potential investor? HLH Group currently has financial flexibility to ramp up growth in the future. Furthermore, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. To gain more conviction in the stock, you need to further analyse H27’s track record. I encourage you to continue your research by taking a look at H27’s past performance analysis on our free platform to figure out H27’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.