China Haida Ltd (SGX:C92) is a small-cap stock with a market capitalization of SGD4.33M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Given that C92 is not presently profitable, it’s essential to understand 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’d encourage you to dig deeper yourself into C92 here.
Does C92 generate enough cash through operations?
Over the past year, C92 has ramped up its debt from CN¥15.0M to CN¥22.0M . With this increase in debt, C92 currently has CN¥73.8M remaining in cash and short-term investments , ready to deploy into the business. Moreover, C92 has generated cash from operations of CN¥31.2M during the same period of time, leading to an operating cash to total debt ratio of 1.42x, signalling that C92’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires positive earnings. In C92’s case, it is able to generate 1.42x cash from its debt capital.
Can C92 meet its short-term obligations with the cash in hand?
At the current liabilities level of CN¥57.8M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 4.78x. However, a ratio greater than 3x may be considered as too high, as C92 could be holding too much capital in a low-return investment environment.
Is C92’s level of debt at an acceptable level?
With debt at 8.04% of equity, C92 may be thought of as having low leverage. This range is considered safe as C92 is not taking on too much debt obligation, which may be constraining for future growth. C92’s risk around capital structure is almost non-existent, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
Are you a shareholder? Although C92’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 C92’s financial situation may change. You should always be keeping abreast of market expectations for C92’s future growth on our free analysis platform.