Investors are always looking for growth in small-cap stocks like China Eco-Farming Limited (SEHK:8166), with a market cap of HK$610.36M. However, an important fact which most ignore is: how financially healthy is the business? Given that 8166 is not presently profitable, it’s crucial to assess the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I recommend you dig deeper yourself into 8166 here.
Does 8166 generate an acceptable amount of cash through operations?
8166 has built up its total debt levels in the last twelve months, from HK$66.5M to HK$110.3M , which comprises of short- and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at HK$111.1M , ready to deploy into the business. Though its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 examine some of 8166’s operating efficiency ratios such as ROA here.
Can 8166 pay its short-term liabilities?
With current liabilities at HK$112.3M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of HK$207.0M, with a current ratio of 1.84x. Generally, for logistics companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is 8166’s level of debt at an acceptable level?
8166’s level of debt is appropriate relative to its total equity, at 26.43%. This range is considered safe as 8166 is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for 8166, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
Are you a shareholder? Although 8166’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. 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. You should always be keeping abreast of market expectations for 8166’s future growth on our free analysis platform.
Are you a potential investor? 8166’s low-debt position gives it headroom for future growth funding in the future. Furthermore, its high liquidity means the company should continue to operate smoothly in the case of adverse events. To gain more conviction in the stock, you need to also examine 8166’s track record. You should continue your analysis by taking a look at 8166’s past performance analysis on our free platform to conclude on 8166’s financial health.
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.