Yahoo Finance Is Luzhou Bio-chem Technology Limited (SGX:L46) A Financially Sound Company?
Luzhou Bio-chem Technology Limited (SGX:L46) is a small-cap stock with a market capitalization of S$8.32M. 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 L46 is loss-making right now, it’s essential to evaluate 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 recommend you dig deeper yourself into L46 here.
Does L46 generate an acceptable amount of cash through operations?
L46’s debt levels have fallen from CN¥970.00M to CN¥807.01M over the last 12 months , which is made up of current and long term debt. With this reduction in debt, L46 currently has CN¥190.26M remaining in cash and short-term investments , ready to deploy into the business. Additionally, L46 has produced CN¥142.05M in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 17.60%, signalling that L46’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires positive earnings. In L46’s case, it is able to generate 0.18x cash from its debt capital.
Can L46 pay its short-term liabilities?
At the current liabilities level of CN¥568.10M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.06x. Generally, for Food companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can L46 service its debt comfortably?
L46 is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since L46 is currently loss-making, there’s a question of sustainability of its current operations. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
At its current level of cash flow coverage, L46 has room for improvement to better cushion for events which may require debt repayment. Though, 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 L46’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Luzhou Bio-chem Technology to get a more holistic view of the stock by looking at:
Valuation: What is L46 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 L46 is currently mispriced by the market.
Historical Performance: What has L46’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.
