Investors are always looking for growth in small-cap stocks like New Silkroad Culturaltainment Limited (SEHK:472), with a market cap of HK$2.82B. However, an important fact which most ignore is: how financially healthy is the business? Given that 472 is not presently profitable, it’s vital to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into 472 here.
Does 472 generate enough cash through operations?
472 has sustained its debt level by about HK$573.7M over the last 12 months made up of current and long term debt. At this current level of debt, 472 currently has HK$1,584.9M remaining in cash and short-term investments , ready to deploy into the business. Additionally, 472 has generated cash from operations of HK$57.5M in the last twelve months, resulting in an operating cash to total debt ratio of 0.1x, meaning that 472’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for loss making companies since metrics such as return on asset (ROA) requires positive earnings. In 472’s case, it is able to generate 0.1x cash from its debt capital.
Can 472 pay its short-term liabilities?
At the current liabilities level of HK$1,970.7M liabilities, it appears that the company is not able to meet these obligations given the level of current assets of HK$1,935.6M, with a current ratio of 0.98x below the prudent level of 3x.
Can 472 service its debt comfortably?
With a debt-to-equity ratio of 7.77%, 472’s debt level is relatively low. This range is considered safe as 472 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. 472’s risk around capital structure is almost non-existent, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
Are you a shareholder? 472’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Given that its financial position may change. I recommend researching market expectations for 472’s future growth on our free analysis platform.
Are you a potential investor? 472’s low-debt position gives it headroom for future growth funding in the future. Moreover, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. In order to build your conviction in the stock, you need to further analyse the company’s track record. As a following step, you should take a look at 472’s past performance analysis on our free platform to conclude on 472’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.