Is Ascendas India Trust’s (SGX:CY6U) Balance Sheet Strong Enough To Weather A Storm?

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Investors are always looking for growth in small-cap stocks like Ascendas India Trust (SGX:CY6U), with a market cap of S$1.03B. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is essential, 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. Nevertheless, since I only look at basic financial figures, I suggest you dig deeper yourself into CY6U here.

Does CY6U generate enough cash through operations?

Over the past year, CY6U has ramped up its debt from S$364.42M to S$466.18M , which comprises of short- and long-term debt. With this growth in debt, CY6U currently has S$75.00M remaining in cash and short-term investments for investing into the business. Moreover, CY6U has produced S$94.87M in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 20.35%, signalling that CY6U’s operating cash is sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In CY6U’s case, it is able to generate 0.2x cash from its debt capital.

Can CY6U meet its short-term obligations with the cash in hand?

With current liabilities at S$81.02M, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.46x. Generally, for Real Estate companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

SGX:CY6U Historical Debt Mar 16th 18
SGX:CY6U Historical Debt Mar 16th 18

Does CY6U face the risk of succumbing to its debt-load?

CY6U is a relatively highly levered company with a debt-to-equity of 61.97%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether CY6U 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 CY6U’s, case, the ratio of 4.18x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as CY6U’s high interest coverage is seen as responsible and safe practice.

Next Steps:

CY6U’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how CY6U has been performing in the past. I recommend you continue to research Ascendas India Trust to get a better picture of the stock by looking at: