Yahoo Finance How Financially Strong Is Henan Jinma Energy Company Limited (HKG:6885)?
Henan Jinma Energy Company Limited (SEHK:6885) is a small-cap stock with a market capitalization of HK$2.02B. 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? Assessing first and foremost the financial health is essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, since I only look at basic financial figures, I’d encourage you to dig deeper yourself into 6885 here.
Does 6885 generate an acceptable amount of cash through operations?
6885 has shrunken its total debt levels in the last twelve months, from CN¥720.55M to CN¥567.00M , which is made up of current and long term debt. With this reduction in debt, 6885’s cash and short-term investments stands at CN¥481.70M , ready to deploy into the business. Moreover, 6885 has generated CN¥482.73M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 85.14%, meaning that 6885’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 6885’s case, it is able to generate 0.85x cash from its debt capital.
Does 6885’s liquid assets cover its short-term commitments?
With current liabilities at CN¥894.49M, the company has been able to meet these commitments with a current assets level of CN¥1.56B, leading to a 1.74x current account ratio. Generally, for Metals and Mining companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can 6885 service its debt comfortably?
With a debt-to-equity ratio of 32.81%, 6885’s debt level may be seen as prudent. 6885 is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether 6885 is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In 6885’s, case, the ratio of 16.49x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
6885’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, 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 6885 has been performing in the past. I recommend you continue to research Henan Jinma Energy to get a more holistic view of the stock by looking at:
Valuation: What is 6885 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 6885 is currently mispriced by the market.
Historical Performance: What has 6885’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 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.
