Ming Fai International Holdings Limited (SEHK:3828) is a small-cap stock with a market capitalization of HK$879.09M. 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? Assessing first and foremost the financial health is essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I suggest you dig deeper yourself into 3828 here.

Does 3828 generate enough cash through operations?

3828 has shrunken its total debt levels in the last twelve months, from HK$68.6M to HK$39.8M . With this debt repayment, 3828 currently has HK$511.0M remaining in cash and short-term investments , ready to deploy into the business. Additionally, 3828 has produced HK$10.4M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 26.20%, signalling that 3828’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 3828’s case, it is able to generate 0.26x cash from its debt capital.

Can 3828 meet its short-term obligations with the cash in hand?

Looking at 3828’s most recent HK$676.3M liabilities, it appears that the company has been able to meet these commitments with a current assets level of HK$1,322.9M, leading to a 1.96x current account ratio. For Personal Products companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.

Does 3828 face the risk of succumbing to its debt-load?

With debt at 3.81% of equity, 3828 may be thought of as having low leverage. 3828 is not taking on too much debt commitment, which may be constraining for future growth.

Next Steps:

3828’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for 3828’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Ming Fai International Holdings to get a more holistic view of the stock by looking at: