In This Article:
While small-cap stocks, such as Winning Tower Group Holdings Limited (SEHK:8362) with its market cap of HK$163.80M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Consumer Retailing businesses operating in the environment facing headwinds from current disruption, in particular ones that run negative earnings, are more likely to be higher risk. Assessing first and foremost the financial health is crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into 8362 here.
Does 8362 generate an acceptable amount of cash through operations?
8362’s debt levels have fallen from HK$28.29M to HK$24.26M over the last 12 months , which is made up of current and long term debt. With this debt repayment, 8362 currently has HK$25.13M remaining in cash and short-term investments 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 8362’s operating efficiency ratios such as ROA here.
Can 8362 pay its short-term liabilities?
Looking at 8362’s most recent HK$12.59M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.99x. However, a ratio greater than 3x may be considered as too high, as 8362 could be holding too much capital in a low-return investment environment.
Does 8362 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 19.11%, 8362’s debt level may be seen as prudent. This range is considered safe as 8362 is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for 8362, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
8362’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 proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure 8362 has company-specific issues impacting its capital structure decisions. I suggest you continue to research Winning Tower Group Holdings to get a more holistic view of the stock by looking at: