While small-cap stocks, such as CSE Global Limited (SGX:544) with its market cap of SGD190.95M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the IT industry, in particular ones that run negative earnings, are more likely to be higher risk. So, understanding the company’s financial health becomes vital. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I suggest you dig deeper yourself into 544 here.
Does 544 generate an acceptable amount of cash through operations?
544’s debt levels have fallen from SGD55.6M to SGD20.6M over the last 12 months . With this reduction in debt, the current cash and short-term investment levels stands at SGD90.8M , ready to deploy into the business. On top of this, 544 has generated cash from operations of SGD58.4M over the same time period, leading to an operating cash to total debt ratio of 283.37%, meaning that 544’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making businesses since metrics such as return on asset (ROA) requires a positive net income. In 544’s case, it is able to generate 2.83x cash from its debt capital.
Can 544 pay its short-term liabilities?
Looking at 544’s most recent SGD74.1M liabilities, it appears that the company has been able to meet these obligations given the level of current assets of SGD239.7M, with a current ratio of 3.24x. Though, anything about 3x may be excessive, since 544 may be leaving too much capital in low-earning investments.
Can 544 service its debt comfortably?
544’s level of debt is appropriate relative to its total equity, at 12.19%. This range is considered safe as 544 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Risk around debt is very low for 544, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
544’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. 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 544 has been performing in the past. I recommend you continue to research CSE Global to get a better picture of the stock by looking at: