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While small-cap stocks, such as Beijing Gas Blue Sky Holdings Limited (SGX:UQ7) with its market cap of S$945.11M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I recommend you dig deeper yourself into UQ7 here.
Does UQ7 generate enough cash through operations?
Over the past year, UQ7 has ramped up its debt from HK$464.99M to HK$666.42M – this includes both the current and long-term debt. With this growth in debt, UQ7’s cash and short-term investments stands at HK$216.95M 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 UQ7’s operating efficiency ratios such as ROA here.
Can UQ7 pay its short-term liabilities?
Looking at UQ7’s most recent HK$321.36M liabilities, it seems that the business has been able to meet these commitments with a current assets level of HK$635.03M, leading to a 1.98x current account ratio. Generally, for Gas Utilities companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can UQ7 service its debt comfortably?
With debt at 31.96% of equity, UQ7 may be thought of as appropriately levered. This range is considered safe as UQ7 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
Next Steps:
UQ7’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. Keep in mind I haven’t considered other factors such as how UQ7 has been performing in the past. I recommend you continue to research Beijing Gas Blue Sky Holdings to get a more holistic view of the stock by looking at:
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Future Outlook: What are well-informed industry analysts predicting for UQ7’s future growth? Take a look at our free research report of analyst consensus for UQ7’s outlook.
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Historical Performance: What has UQ7’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.