Boyuan Holdings Limited (ASX:BHL) is a small-cap stock with a market capitalization of AU$106m. 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 BHL is loss-making right now, it’s essential to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into BHL here.
How much cash does BHL generate through its operations?
BHL has sustained its debt level by about AU$57m over the last 12 months – this includes both the current and long-term debt. At this current level of debt, BHL currently has AU$13m remaining in cash and short-term investments , 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. For this article’s sake, I won’t be looking at this today, but you can take a look at some of BHL’s operating efficiency ratios such as ROA here.
Can BHL pay its short-term liabilities?
Looking at BHL’s most recent AU$24m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.33x. Usually, for Real Estate companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Is BHL’s debt level acceptable?
BHL is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since BHL is currently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
At its current level of cash flow coverage, BHL has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for BHL’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Boyuan Holdings to get a better picture of the stock by looking at:
- Valuation: What is BHL worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether BHL is currently mispriced by the market.
- Historical Performance: What has BHL’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.
- 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 email@example.com.