How Financially Strong Is Space Group Holdings Limited (HKG:2448)?
While small-cap stocks, such as Space Group Holdings Limited (HKG:2448) with its market cap of HK$912m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. We'll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, this is just a partial view of the stock, and I suggest you dig deeper yourself into 2448 here.
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2448’s Debt (And Cash Flows)
2448's debt levels have fallen from MO$191m to MO$146m over the last 12 months , which includes long-term debt. With this debt repayment, 2448's cash and short-term investments stands at MO$102m , ready to be used for running the business. We note it produced negative cash flow over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can take a look at some of 2448’s operating efficiency ratios such as ROA here.
Can 2448 pay its short-term liabilities?
At the current liabilities level of MO$273m, the company has been able to meet these obligations given the level of current assets of MO$507m, with a current ratio of 1.86x. The current ratio is the number you get when you divide current assets by current liabilities. For Construction companies, this ratio is within a sensible range since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can 2448 service its debt comfortably?
With a debt-to-equity ratio of 45%, 2448 can be considered as an above-average leveraged company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. We can check to see whether 2448 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 2448's, case, the ratio of 14.76x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
2448’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. Since there is also no concerns around 2448's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for 2448's financial health. Other important fundamentals need to be considered alongside. You should continue to research Space Group Holdings to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for 2448’s future growth? Take a look at our free research report of analyst consensus for 2448’s outlook.
Historical Performance: What has 2448'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.
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