How Financially Strong Is Theme International Holdings Limited (HKG:990)?
While small-cap stocks, such as Theme International Holdings Limited (SEHK:990) with its market cap of HK$1.44B, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into 990 here.
Does 990 generate an acceptable amount of cash through operations?
In the most recent balance sheet, 990 has borrowed debt capital of around HK$126.5M . With this growth in debt, 990’s cash and short-term investments stands at HK$29.2M , ready to deploy into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. For this article’s sake, I won’t be looking at this today, but you can take a look at some of 990’s operating efficiency ratios such as ROA here.
Can 990 meet its short-term obligations with the cash in hand?
Looking at 990’s most recent HK$462.2M liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.44x. Generally, for Trade Distributors companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does 990 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 21.04%, 990’s debt level may be seen as prudent. 990 is not taking on too much debt commitment, which may be constraining for future growth.
Next Steps:
Although 990’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. Though, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for 990’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Theme International Holdings to get a better picture of the stock by looking at:
1. Historical Performance: What has 990’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.
2. 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.
