What does Lee Kee Holdings Limited’s (HKG:637) Balance Sheet Tell Us About Its Future?
While small-cap stocks, such as Lee Kee Holdings Limited (HKG:637) with its market cap of HK$340m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Since 637 is loss-making right now, it’s vital to understand 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, this commentary is still very high-level, so I recommend you dig deeper yourself into 637 here.
How much cash does 637 generate through its operations?
637 has shrunken its total debt levels in the last twelve months, from HK$228m to HK$195m , which also accounts for long term debt. With this reduction in debt, 637’s cash and short-term investments stands at HK$367m for investing into the business. On top of this, 637 has generated HK$149m in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 76%, meaning that 637’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In 637’s case, it is able to generate 0.76x cash from its debt capital.
Can 637 meet its short-term obligations with the cash in hand?
Looking at 637’s HK$248m in current liabilities, the company has been able to meet these commitments with a current assets level of HK$1.2b, leading to a 4.71x current account ratio. Having said that, many consider a ratio above 3x to be high.
Does 637 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 19%, 637’s debt level may be seen as prudent. 637 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 637, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
637 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure 637 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Lee Kee Holdings to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 637’s future growth? Take a look at our free research report of analyst consensus for 637’s outlook.
Valuation: What is 637 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 637 is currently mispriced by the market.
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.
