Investors are always looking for growth in small-cap stocks like BCI Group Holdings Limited (SEHK:8412), with a market cap of HK$204.00M. However, an important fact which most ignore is: how financially healthy is the business? Since 8412 is loss-making right now, it’s vital to evaluate the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into 8412 here.
Does 8412 generate an acceptable amount of cash through operations?
Over the past year, 8412 has reduced its debt from HK$9.3M to HK$0.0M made up of predominantly near term debt. With this debt payback, the current cash and short-term investment levels stands at HK$62.6M for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can assess some of 8412’s operating efficiency ratios such as ROA here.
Can 8412 pay its short-term liabilities?
Looking at 8412’s most recent HK$16.7M liabilities, it seems that the business has been able to meet these commitments with a current assets level of HK$69.1M, leading to a 4.12x current account ratio. However, anything above 3x is considered high and could mean that 8412 has too much idle capital in low-earning investments.
Does 8412 face the risk of succumbing to its debt-load?
With debt at 39.85% of equity, 8412 may be thought of as appropriately levered. 8412 is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for 8412, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
Although 8412’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. Keep in mind I haven’t considered other factors such as how 8412 has been performing in the past. You should continue to research BCI Group Holdings to get a more holistic view of the stock by looking at:
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1. Valuation: What is 8412 worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 8412 is currently mispriced by the market.
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2. Historical Performance: What has 8412’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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.