Yahoo Finance How Financially Strong Is Boyuan Construction Group, Inc. (TSE:BOY)?
Boyuan Construction Group, Inc. (TSE:BOY) is a small-cap stock with a market capitalization of CA$7.8m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? 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. Here are few basic financial health checks you should consider before taking the plunge. However, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into BOY here.
How does BOY’s operating cash flow stack up against its debt?
Over the past year, BOY has ramped up its debt from US$95m to US$105m , which accounts for long term debt. With this rise in debt, BOY’s cash and short-term investments stands at US$7.6m for investing into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of BOY’s operating efficiency ratios such as ROA here.
Can BOY meet its short-term obligations with the cash in hand?
With current liabilities at US$159m, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.31x. For Construction 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.
Does BOY face the risk of succumbing to its debt-load?
With debt reaching 96% of equity, BOY may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether BOY 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 BOY’s, case, the ratio of 6.33x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as BOY’s high interest coverage is seen as responsible and safe practice.
Next Steps:
BOY’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. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven’t considered other factors such as how BOY has been performing in the past. I recommend you continue to research Boyuan Construction Group to get a more holistic view of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for BOY’s future growth? Take a look at our free research report of analyst consensus for BOY’s outlook.
Historical Performance: What has BOY’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 editorial-team@simplywallst.com.
