Investors are always looking for growth in small-cap stocks like Baytacare Pharmaceutical Co Ltd. (SEHK:8197), with a market cap of HK$287.45M. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Pharmaceuticals industry, in particular ones that run negative earnings, are inclined towards being higher risk. So, understanding the company’s financial health becomes vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into 8197 here.
Does 8197 generate enough cash through operations?
Over the past year, 8197 has maintained its debt levels at around CN¥22.50M – this includes both the current and long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at CN¥919.00K , ready to deploy 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. 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 8197’s operating efficiency ratios such as ROA here.
Can 8197 pay its short-term liabilities?
With current liabilities at CN¥10.56M, it seems that the business has been able to meet these obligations given the level of current assets of CN¥44.38M, with a current ratio of 4.2x. However, anything above 3x is considered high and could mean that 8197 has too much idle capital in low-earning investments.
Does 8197 face the risk of succumbing to its debt-load?
8197’s level of debt is appropriate relative to its total equity, at 20.40%. 8197 is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for 8197, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
8197’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for 8197’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Baytacare Pharmaceutical to get a better picture of the stock by looking at: