Investors are always looking for growth in small-cap stocks like OKH Global Ltd (SGX:S3N), with a market cap of S$44.02M. However, an important fact which most ignore is: how financially healthy is the business? Given that S3N is not presently profitable, it’s essential to understand the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into S3N here.

Does S3N generate an acceptable amount of cash through operations?

S3N’s debt levels have fallen from S$273.69M to S$184.89M over the last 12 months , which is made up of current and long term debt. With this debt repayment, the current cash and short-term investment levels stands at S$20.26M , ready to deploy into the business. On top of this, S3N has produced cash from operations of S$26.86M over the same time period, resulting in an operating cash to total debt ratio of 14.53%, indicating that S3N’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires a positive net income. In S3N’s case, it is able to generate 0.15x cash from its debt capital.

Can S3N pay its short-term liabilities?

Looking at S3N’s most recent S$164.83M liabilities, the company has been able to meet these commitments with a current assets level of S$173.60M, leading to a 1.05x current account ratio. 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.

Can S3N service its debt comfortably?

Since total debt levels have outpaced equities, S3N is a highly leveraged company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. But since S3N is presently loss-making, sustainability of its current state of operations becomes a concern. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

S3N’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure S3N has company-specific issues impacting its capital structure decisions. I suggest you continue to research OKH Global to get a better picture of the stock by looking at: