Yahoo Finance Is Yu Tak International Holdings Limited’s (HKG:8048) Balance Sheet A Threat To Its Future?
Yu Tak International Holdings Limited (SEHK:8048) is a small-cap stock with a market capitalization of HK$140.83M. 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? Companies operating in the Software industry, especially ones that are currently loss-making, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into 8048 here.
How does 8048’s operating cash flow stack up against its debt?
8048 has built up its total debt levels in the last twelve months, from HK$15.05M to HK$20.54M , which is mainly comprised of near term debt. With this increase in debt, the current cash and short-term investment levels stands at HK$26.50M for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of 8048’s operating efficiency ratios such as ROA here.
Can 8048 pay its short-term liabilities?
Looking at 8048’s most recent HK$45.91M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of HK$103.77M, with a current ratio of 2.26x. For Software companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can 8048 service its debt comfortably?
With a debt-to-equity ratio of 30.87%, 8048’s debt level may be seen as prudent. 8048 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with 8048, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
Although 8048’s debt level is relatively low, its cash flow levels still could not copiously cover its borrowings. This may indicate room for improvement in terms of its operating efficiency. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for 8048’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Yu Tak International Holdings to get a better picture of the stock by looking at:
Historical Performance: What has 8048’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.
