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While small-cap stocks, such as Win Hanverky Holdings Limited (HKG:3322) with its market cap of HK$873.4m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. However, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into 3322 here.
How does 3322’s operating cash flow stack up against its debt?
3322’s debt levels surged from HK$125.4m to HK$360.7m over the last 12 months . With this growth in debt, 3322’s cash and short-term investments stands at HK$783.7m for investing into the business. Moving onto cash from operations, 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of 3322’s operating efficiency ratios such as ROA here.
Does 3322’s liquid assets cover its short-term commitments?
Looking at 3322’s most recent HK$953.7m liabilities, the company has been able to meet these commitments with a current assets level of HK$2.07b, leading to a 2.18x 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.
Is 3322’s debt level acceptable?
With debt at 15.9% of equity, 3322 may be thought of as appropriately levered. 3322 is not taking on too much debt commitment, which may be constraining for future growth.
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3322’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 will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for 3322’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Win Hanverky Holdings to get a better picture of the stock by looking at:
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Future Outlook: What are well-informed industry analysts predicting for 3322’s future growth? Take a look at our free research report of analyst consensus for 3322’s outlook.
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Historical Performance: What has 3322’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.