Investors are always looking for growth in small-cap stocks like Fortune Asia Group Limited (ASX:FYA), with a market cap of AUD A$5.64M. However, an important fact which most ignore is: how financially healthy is the business? Since FYA is loss-making right now, it’s crucial to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into FYA here.

Does FYA generate enough cash through operations?

FYA has built up its total debt levels in the last twelve months, from A$0M to A$0M . With this increase in debt, FYA’s cash and short-term investments stands at A$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 FYA’s operating efficiency ratios such as ROA here.

Can FYA pay its short-term liabilities?

Looking at FYA’s most recent A$1M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of A$1M, with a current ratio of 2.02x. For metals and mining companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.

Is FYA’s level of debt at an acceptable level?

With a debt-to-equity ratio of 23.16%, FYA’s debt level may be seen as prudent. FYA is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for FYA, and the company also has the ability and headroom to increase debt if needed going forward.

Next Steps:

Are you a shareholder? Although FYA’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 its financial position may be different. You should always be keeping abreast of market expectations for FYA’s future growth on our free analysis platform.

Are you a potential investor? Fortune Asia Group 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 also analyse FYA’s track record. I encourage you to continue your research by taking a look at FYA’s past performance analysis on our free platform to conclude on FYA’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.