Investors are always looking for growth in small-cap stocks like Success Dragon International Holdings Limited (SEHK:1182), with a market cap of HK$512.20M. However, an important fact which most ignore is: how financially healthy is the business? Given that 1182 is not presently profitable, it’s essential to evaluate 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, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into 1182 here.
Does 1182 generate an acceptable amount of cash through operations?
1182’s debt levels surged from HK$10.4M to HK$17.4M over the last 12 months , which is made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at HK$19.1M , 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 take a look at some of 1182’s operating efficiency ratios such as ROA here.
Can 1182 pay its short-term liabilities?
With current liabilities at HK$23.5M liabilities, it seems that the business has been able to meet these commitments with a current assets level of HK$27.3M, leading to a 1.16x current account ratio. Usually, for hospitality companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is 1182’s level of debt at an acceptable level?
With a debt-to-equity ratio of 10.59%, 1182’s debt level may be seen as prudent. 1182 is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is very low with 1182, 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? 1182’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Furthermore, the company may struggle to meet its near term liabilities should an adverse event occur. Given that its financial position may be different. I recommend researching market expectations for 1182’s future growth on our free analysis platform.
Are you a potential investor? 1182 appears to have maintained a sensible level of debt, which means there’s still some headroom to grow debt funding. But its current cash flow coverage of existing debt, in addition to the low liquidity, is concerning. However, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of 1182’s track record. You should continue your analysis by taking a look at 1182’s past performance analysis on our free platform to figure out 1182’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.