Seamless Green China (Holdings) Limited (SEHK:8150) is a small-cap stock with a market capitalization of HK$217.01M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Since 8150 is loss-making right now, it’s vital 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. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into 8150 here.
Does 8150 generate enough cash through operations?
8150 has sustained its debt level by about HK$15.0M over the last 12 months . At this stable level of debt, 8150 currently has HK$35.6M remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can take a look at some of 8150’s operating efficiency ratios such as ROA here.
Can 8150 meet its short-term obligations with the cash in hand?
At the current liabilities level of HK$24.5M liabilities, it appears that the company has been able to meet these commitments with a current assets level of HK$42.0M, leading to a 1.71x current account ratio. Usually, for Luxury companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does 8150 face the risk of succumbing to its debt-load?
With debt at 20.31% of equity, 8150 may be thought of as appropriately levered. 8150 is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for 8150, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
Although 8150’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how 8150 has been performing in the past. I suggest you continue to research Seamless Green China (Holdings) to get a more holistic view of the stock by looking at: