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Investors are always looking for growth in small-cap stocks like Timeless Software Limited (SEHK:8028), with a market cap of HK$205.34M. However, an important fact which most ignore is: how financially healthy is the business? Since 8028 is loss-making right now, it’s essential to evaluate the current state of its operations and pathway to profitability. 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 8028 here.
Does 8028 generate enough cash through operations?
8028 has shrunken its total debt levels in the last twelve months, from HK$39.39M to HK$20.53M – this includes both the current and long-term debt. With this reduction in debt, 8028 currently has HK$102.17M remaining in cash and short-term investments , ready to deploy 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 8028’s operating efficiency ratios such as ROA here.
Can 8028 meet its short-term obligations with the cash in hand?
At the current liabilities level of HK$29.37M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of HK$139.54M, with a current ratio of 4.75x. However, anything above 3x is considered high and could mean that 8028 has too much idle capital in low-earning investments.
Does 8028 face the risk of succumbing to its debt-load?
With debt at 3.12% of equity, 8028 may be thought of as having low leverage. 8028 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. 8028’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.
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8028’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. I admit this is a fairly basic analysis for 8028’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Timeless Software to get a better picture of the stock by looking at: