Investors are always looking for growth in small-cap stocks like China Oil Gangran Energy Group Holdings Limited (SEHK:8132), with a market cap of HK$393.12M. However, an important fact which most ignore is: how financially healthy is the business? Given that 8132 is not presently profitable, it’s vital 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. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into 8132 here.
Does 8132 generate an acceptable amount of cash through operations?
8132 has shrunken its total debt levels in the last twelve months, from HK$136.5M to HK$127.2M , which comprises of short- and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at HK$45.1M , ready to deploy into the business. Moving onto cash from operations, 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of 8132’s operating efficiency ratios such as ROA here.
Can 8132 meet its short-term obligations with the cash in hand?
Looking at 8132’s most recent HK$151.7M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of HK$232.1M, with a current ratio of 1.53x. Generally, for Electrical companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does 8132 face the risk of succumbing to its debt-load?
With debt reaching 93.82% of equity, 8132 may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. However, since 8132 is presently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Next Steps:
At its current level of cash flow coverage, 8132 has room for improvement to better cushion for events which may require debt repayment. However, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. I admit this is a fairly basic analysis for 8132’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research China Oil Gangran Energy Group Holdings to get a more holistic view of the stock by looking at: