【list of slot machines at wildhorse casino】What does Powerlong Real Estate Holdings Limited’s (HKG:1238) Balance Sheet Tell Us About Its Future?

Investors are always looking for growth in small-cap stocks like Powerlong Real Estate Holdings Limited (

HKG:1238

),list of slot machines at wildhorse casino with a market cap of HK$15b. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. However, given that I have not delve into the company-specifics, I’d encourage you to

dig deeper yourself into 1238 here

.

How much cash does 1238 generate through its operations?

1238 has built up its total debt levels in the last twelve months, from CN¥32b to CN¥44b , which accounts for long term debt. With this growth in debt, 1238’s cash and short-term investments stands at CN¥13b for investing into the business. Moreover, 1238 has generated cash from operations of CN¥2.0b during the same period of time, resulting in an operating cash to total debt ratio of 4.5%, indicating that 1238’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 1238’s case, it is able to generate 0.045x cash from its debt capital.

Does 1238’s liquid assets cover its short-term commitments?

At the current liabilities level of CN¥47b, it appears that the company has been able to meet these commitments with a current assets level of CN¥60b, leading to a 1.3x current account ratio. For Real Estate 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.

SEHK:1238 Historical Debt, March 1st 2019

Can 1238 service its debt comfortably?

1238 is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can test if 1238’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For 1238, the ratio of 5.08x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as 1238’s high interest coverage is seen as responsible and safe practice.

Next Steps:

Although 1238’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. Since there is also no concerns around 1238’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure 1238 has company-specific issues impacting its capital structure decisions. I suggest you continue to research Powerlong Real Estate Holdings to get a better picture of the small-cap by looking at:

Story continues

Future Outlook

: What are well-informed industry analysts predicting for 1238’s future growth? Take a look at our

free research report of analyst consensus

for 1238’s outlook.

Historical Performance

: What has 1238’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

.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

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. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.

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