Investors are always looking for growth in small-cap stocks like Time2u International Holding Limited (SEHK:1327), with a market cap of HK$162.43M. However, an important fact which most ignore is: how financially healthy is the business? Since 1327 is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. However, this commentary is still very high-level, so I recommend you dig deeper yourself into 1327 here.
Does 1327 generate enough cash through operations?
Over the past year, 1327 has reduced its debt from CN¥60.6M to CN¥31.0M . With this debt repayment, 1327 currently has CN¥417.8M remaining in cash and short-term investments for investing into the business. However, 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 1327’s operating efficiency ratios such as ROA here.
Can 1327 pay its short-term liabilities?
Looking at 1327’s most recent CN¥82.6M liabilities, the company has been able to meet these obligations given the level of current assets of CN¥677.4M, with a current ratio of 8.2x. However, anything about 3x may be excessive, since 1327 may be leaving too much capital in low-earning investments.
Does 1327 face the risk of succumbing to its debt-load?
1327’s level of debt is appropriate relative to its total equity, at 13.36%. 1327 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. 1327’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
Next Steps:
Are you a shareholder? 1327’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 exhibits an ability to meet its near term obligations should an adverse event occur. Given that 1327’s financial situation may change. I suggest researching market expectations for 1327’s future growth on our free analysis platform.
Are you a potential investor? Time2u International Holding currently has financial flexibility to ramp up growth in the future. In addition, its high liquidity means the company should continue to operate smoothly in the case of adverse events. In order to build your confidence in the stock, you need to also analyse 1327’s track record. I encourage you to continue your research by taking a look at 1327’s past performance analysis on our free platform to figure out 1327’s financial health position.
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.