Yahoo Finance Is Hebei Construction Group Corporation Limited’s (HKG:1727) Balance Sheet Strong Enough To Weather A Storm?
Investors are always looking for growth in small-cap stocks like Hebei Construction Group Corporation Limited (HKG:1727), with a market cap of HK$7.4b. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into 1727 here.
Does 1727 produce enough cash relative to debt?
1727’s debt level has been constant at around CN¥3.7b over the previous year comprising of short- and long-term debt. At this constant level of debt, the current cash and short-term investment levels stands at CN¥4.4b , ready to deploy into the business. Moreover, 1727 has produced CN¥497m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 13%, signalling that 1727’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 1727’s case, it is able to generate 0.13x cash from its debt capital.
Can 1727 pay its short-term liabilities?
At the current liabilities level of CN¥47.3b liabilities, the company has been able to meet these commitments with a current assets level of CN¥51.5b, leading to a 1.09x current account ratio. For Construction companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too much capital in low return investments.
Does 1727 face the risk of succumbing to its debt-load?
With debt reaching 74% of equity, 1727 may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.
Next Steps:
At its current level of cash flow coverage, 1727 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. This is only a rough assessment of financial health, and I’m sure 1727 has company-specific issues impacting its capital structure decisions. I suggest you continue to research Hebei Construction Group to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 1727’s future growth? Take a look at our free research report of analyst consensus for 1727’s outlook.
Historical Performance: What has 1727’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 editorial-team@simplywallst.com.
