Vietnam Industrial Investments Limited (ASX:VII) is a small-cap stock with a market capitalization of AU$42.68M. 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? Evaluating financial health as part of your investment thesis is crucial, 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. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into VII here.
Does VII generate enough cash through operations?
VII has built up its total debt levels in the last twelve months, from AU$86.87M to AU$106.76M , which is mainly comprised of near term debt. With this increase in debt, VII’s cash and short-term investments stands at AU$64.25M for investing 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. For this article’s sake, I won’t be looking at this today, but you can examine some of VII’s operating efficiency ratios such as ROA here.
Does VII’s liquid assets cover its short-term commitments?
Looking at VII’s most recent AU$127.10M liabilities, the company has been able to meet these obligations given the level of current assets of AU$163.33M, with a current ratio of 1.28x. For Metals and Mining companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can VII service its debt comfortably?
VII is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.
Next Steps:
VII’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. Keep in mind I haven’t considered other factors such as how VII has been performing in the past. You should continue to research Vietnam Industrial Investments to get a more holistic view of the stock by looking at:
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Historical Performance: What has VII’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
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.