Investors are always looking for growth in small-cap stocks like Jia Group Holdings limited (SEHK:8519), with a market cap of HK$164.26M. However, an important fact which most ignore is: how financially healthy is the business? Given that 8519 is not presently profitable, it’s essential to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into 8519 here.

Does 8519 generate an acceptable amount of cash through operations?

Over the past year, 8519 has ramped up its debt from HK$2.18M to HK$16.94M , which comprises of short- and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at HK$7.64M for investing into the business. Moreover, 8519 has produced HK$2.78M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 16.39%, meaning that 8519’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making companies since metrics such as return on asset (ROA) requires a positive net income. In 8519’s case, it is able to generate 0.16x cash from its debt capital.

Can 8519 pay its short-term liabilities?

At the current liabilities level of HK$39.03M liabilities, it seems that the business has not been able to meet these commitments with a current assets level of HK$30.31M, leading to a 0.78x current account ratio. which is under the appropriate industry ratio of 3x.

Can 8519 service its debt comfortably?

With debt at 38.51% of equity, 8519 may be thought of as appropriately levered. 8519 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. 8519’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:

8519’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. I admit this is a fairly basic analysis for 8519’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Jia Group Holdings to get a better picture of the stock by looking at: