Investors are always looking for growth in small-cap stocks like China Techfaith Wireless Communication Technology Limited (NASDAQ:CNTF), with a market cap of $29.33M. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the tech industry, even ones that are profitable, tend to be high risk. Evaluating financial health as part of your investment thesis is crucial. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into CNTF here.
How does CNTF’s operating cash flow stack up against its debt?
CNTF’s debt levels have fallen from $22.3M to $20.4M over the last 12 months – this includes both the current and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at $8.9M for investing into the business. However, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 CNTF’s operating efficiency ratios such as ROA here.
Does CNTF’s liquid assets cover its short-term commitments?
At the current liabilities level of $88.6M liabilities, it appears that the company has not been able to meet these commitments with a current assets level of $86.8M, leading to a 0.98x current account ratio. which is under the appropriate industry ratio of 3x.
Is CNTF’s debt level acceptable?
With a debt-to-equity ratio of 5.84%, CNTF’s debt level is relatively low. CNTF is not taking on too much debt commitment, which may be constraining for future growth.
Next Steps:
Are you a shareholder? CNTF’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Given that its financial position may change. I recommend researching market expectations for CNTF’s future growth on our free analysis platform.
Are you a potential investor? CNTF’s low-debt position gives it headroom for future growth funding in the future. Moreover, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. To gain more conviction in the stock, you need to further examine CNTF’s track record. I encourage you to continue your research by taking a look at CNTF’s past performance analysis on our free platform to conclude on CNTF’s financial health.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.