You Might Like Tianjin Binhai TEDA Logistics (Group) Corporation Limited (HKG:8348) But Do You Like Its Debt?
Investors are always looking for growth in small-cap stocks like Tianjin Binhai TEDA Logistics (Group) Corporation Limited (HKG:8348), with a market cap of HK$195m. However, an important fact which most ignore is: how financially healthy is the business? Understanding the company's financial health becomes 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. However, these checks don't give you a full picture, so I’d encourage you to dig deeper yourself into 8348 here.
8348’s Debt (And Cash Flows)
Over the past year, 8348 has ramped up its debt from CN¥419m to CN¥557m made up of predominantly near term debt. With this growth in debt, 8348 currently has CN¥387m remaining in cash and short-term investments to keep the business going. Moving on, operating cash flow was negative over the last twelve months. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of 8348’s operating efficiency ratios such as ROA here.
Can 8348 pay its short-term liabilities?
With current liabilities at CN¥1.5b, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.27x. The current ratio is calculated by dividing current assets by current liabilities. For Logistics companies, this ratio is within a sensible range as there's enough of a cash buffer without holding too much capital in low return investments.
Is 8348’s debt level acceptable?
8348 is a relatively highly levered company with a debt-to-equity of 52%. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In 8348's case, the ratio of 2.38x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as 8348’s low interest coverage already puts the company at higher risk of default.
Next Steps:
8348’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 8348's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for 8348's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Tianjin Binhai TEDA Logistics (Group) to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for 8348’s future growth? Take a look at our free research report of analyst consensus for 8348’s outlook.
Historical Performance: What has 8348'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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