While small-cap stocks, such as Junefield Department Store Group Limited (SEHK:758) with its market cap of HK$742.23M, 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 assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into 758 here.
How does 758’s operating cash flow stack up against its debt?
Over the past year, 758 has ramped up its debt from HK$16.68M to HK$40.95M , which comprises of short- and long-term debt. With this rise in debt, the current cash and short-term investment levels stands at HK$61.06M , 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. As the purpose of this article is a high-level overview, 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 meet its short-term obligations with the cash in hand?
With current liabilities at HK$72.78M, it appears that the company has been able to meet these commitments with a current assets level of HK$127.19M, leading to a 1.75x current account ratio. Generally, for Basic Materials companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Can 758 service its debt comfortably?
758’s level of debt is appropriate relative to its total equity, at 13.90%. This range is considered safe as 758 is not taking on too much debt obligation, which may be constraining for future growth. 758’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:
758’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. Keep in mind I haven’t considered other factors such as how 758 has been performing in the past. I suggest you continue to research Junefield Department Store Group to get a more holistic view of the stock by looking at: