Investors are always looking for growth in small-cap stocks like Dukang Distillers Holdings Limited (SGX:BKV), with a market cap of SGD20.76M. However, an important fact which most ignore is: how financially healthy is the business? Given that BKV 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, since I only look at basic financial figures, I suggest you dig deeper yourself into BKV here.

How does BKV’s operating cash flow stack up against its debt?

Over the past year, BKV has reduced its debt from CN¥135.0M to CN¥113.0M made up of predominantly near term debt. With this debt payback, BKV’s cash and short-term investments stands at CN¥190.2M , ready to deploy into the business. Though 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 assess some of BKV’s operating efficiency ratios such as ROA here.

Can BKV pay its short-term liabilities?

At the current liabilities level of CN¥325.8M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of CN¥1,051.8M, with a current ratio of 3.23x. Though, anything about 3x may be excessive, since BKV may be leaving too much capital in low-earning investments.

Is BKV’s level of debt at an acceptable level?

BKV’s level of debt is low relative to its total equity, at 8.79%. BKV is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is virtually non-existent with BKV, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Next Steps:

Are you a shareholder? BKV’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 an ability to meet its near term obligations should an adverse event occur. Given that its financial position may be different. I suggest researching market expectations for BKV’s future growth on our free analysis platform.

Are you a potential investor? Dukang Distillers Holdings currently has financial flexibility to ramp up growth in the future. In addition, its high liquidity ensures the company will continue to operate smoothly should unfavourable circumstances arise. In order to build your conviction in the stock, you need to also analyse BKV’s track record. I encourage you to continue your research by taking a look at BKV’s past performance analysis on our free platform in order to determine for yourself whether its debt position is justified.

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.