Investors are always looking for growth in small-cap stocks like Best World International Limited (SGX:CGN), with a market cap of SGD737.12M. However, an important fact which most ignore is: how financially healthy is the business? 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, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into CGN here.
Does CGN generate an acceptable amount of cash through operations?
CGN’s debt levels surged from SGD0.0M to SGD7.4M over the last 12 months , which is made up of current and long term debt. With this growth in debt, the current cash and short-term investment levels stands at SGD54.9M , ready to deploy into the business. On top of this, CGN has generated SGD20.1M in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 272.52%, signalling that CGN’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 CGN’s case, it is able to generate 2.73x cash from its debt capital.
Can CGN pay its short-term liabilities?
At the current liabilities level of SGD64.0M liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.09x. Usually, for Personal Products companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can CGN service its debt comfortably?
With debt at 7.68% of equity, CGN may be thought of as having low leverage. This range is considered safe as CGN is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
Next Steps:
CGN has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how CGN has been performing in the past. You should continue to research Best World International to get a more holistic view of the stock by looking at:
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1. Future Outlook: What are well-informed industry analysts predicting for CGN’s future growth? Take a look at our free research report of analyst consensus for CGN’s outlook.
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2. Valuation: What is CGN worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether CGN is currently mispriced by the market.
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3. 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.