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Is Niuminco Group Limited’s (ASX:NIU) Balance Sheet A Threat To Its Future?

Julian Fleming June 22, 2018

While small-cap stocks, such as Niuminco Group Limited (ASX:NIU) with its market cap of AU$4.82m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that NIU is not presently profitable, it’s crucial to evaluate the current state of its operations and pathway to profitability. 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 NIU here.
How much cash does NIU generate through its operations?

NIU has shrunken its total debt levels in the last twelve months, from AU$797.41k to AU$754.63k , which is mainly comprised of near term debt. With this reduction in debt, the current cash and short-term investment levels stands at under A$10K, which is rather low. Additionally, 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 assess some of NIU’s operating efficiency ratios such as ROA here.
Can NIU meet its short-term obligations with the cash in hand?

At the current liabilities level of AU$3.63m liabilities, it appears that the company has not been able to meet these commitments with a current assets level of AU$742.64k, leading to a 0.2x current account ratio. which is under the appropriate industry ratio of 3x.

ASX:NIU Historical Debt June 22nd 18
Is NIU’s debt level acceptable?

With a debt-to-equity ratio of 25.07%, NIU’s debt level may be seen as prudent. This range is considered safe as NIU is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for NIU, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:

NIU’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. In addition to this, its low liquidity raises concerns over whether current asset management practices are properly implemented for the small-cap. Keep in mind I haven’t considered other factors such as how NIU has been performing in the past. You should continue to research Niuminco Group to get a better picture of the stock by looking at:

1. Historical Performance: What has NIU’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.