Yahoo Finance What You Must Know About Sling Group Holdings Limited’s (HKG:8285) Financial Strength
Investors are always looking for growth in small-cap stocks like Sling Group Holdings Limited (SEHK:8285), with a market cap of HK$145.60M. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is crucial, 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. Nevertheless, since I only look at basic financial figures, I recommend you dig deeper yourself into 8285 here.
Does 8285 generate enough cash through operations?
Over the past year, 8285 has reduced its debt from CN¥34.61M to CN¥26.40M . With this debt repayment, 8285 currently has CN¥18.96M remaining in cash and short-term investments for investing into the business. Additionally, 8285 has generated CN¥6.28M in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 23.80%, indicating that 8285’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 8285’s case, it is able to generate 0.24x cash from its debt capital.
Can 8285 meet its short-term obligations with the cash in hand?
Looking at 8285’s most recent CN¥75.44M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of CN¥100.14M, with a current ratio of 1.33x. Usually, for Luxury companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does 8285 face the risk of succumbing to its debt-load?
With debt reaching 88.07% of equity, 8285 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. We can check to see whether 8285 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 8285’s, case, the ratio of 37.55x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving 8285 ample headroom to grow its debt facilities.
Next Steps:
8285’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure 8285 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Sling Group Holdings to get a more holistic view of the stock by looking at:
Valuation: What is 8285 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 8285 is currently mispriced by the market.
Historical Performance: What has 8285’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.
