While small-cap stocks, such as Junefield Department Store Group Limited (SEHK:758) with its market cap of HK$266.58M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that 758 is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Though, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into 758 here.

Does 758 generate enough cash through operations?

758 has built up its total debt levels in the last twelve months, from HK$6.28M to HK$16.68M , which is made up of current and long term debt. With this increase in debt, 758’s cash and short-term investments stands at HK$82.95M , 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 assess some of 758’s operating efficiency ratios such as ROA here.

Can 758 pay its short-term liabilities?

At the current liabilities level of HK$87.28M liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.75x. Usually, for Basic Materials companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

Is 758’s debt level acceptable?

758’s level of debt is appropriate relative to its total equity, at 12.90%. This range is considered safe as 758 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Risk around debt is very low for 758, and the company also has the ability and headroom to increase debt if needed going forward.

Next Steps:

758’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for 758’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Junefield Department Store Group to get a more holistic view of the stock by looking at: