【his & her bar shark tank update】Southeast Asia Properties & Finance Limited (HKG:252): Time For A Financial Health Check

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Investors are always looking for growth in small-cap stocks like Southeast Asia Properties & Finance Limited (

HKG:252

), with a market cap of HK$771m. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, since I only look at basic financial figures, I suggest you

dig deeper yourself into 252 here

.

How does 252’s operating cash flow stack up against its debt?

252 has built up its total debt levels in the last twelve months, from HK$250m to HK$401m – this includes long-term debt. With this rise in debt, 252’s cash and short-term investments stands at HK$102m for investing into the business. On top of this, 252 has generated cash from operations of HK$15m in the last twelve months, leading to an operating cash to total debt ratio of 3.8%, indicating that 252’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 252’s case, it is able to generate 0.038x cash from its debt capital.

Can 252 meet its short-term obligations with the cash in hand?

With current liabilities at HK$373m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.49x. Usually, for Packaging companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

SEHK:252 Historical Debt February 1st 19

Does 252 face the risk of succumbing to its debt-load?

With a debt-to-equity ratio of 31%, 252’s debt level may be seen as prudent. This range is considered safe as 252 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if 252’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 252, the ratio of 3.95x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving 252 ample headroom to grow its debt facilities.

Next Steps:

252 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how 252 has been performing in the past. I recommend you continue to research Southeast Asia Properties & Finance to get a better picture of the stock by looking at:

Story continues

Future Outlook

: What are well-informed industry analysts predicting for 252’s future growth? Take a look at our

free research report of analyst consensus

for 252’s outlook.

Historical Performance

: What has 252’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

.

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

[email protected]

.

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