Want to participate in a research study? Help shape the future of investing tools and earn a $60 gift card!

Goodland Group Limited (SGX:5PC) is a small-cap stock with a market capitalization of S$78m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Assessing first and foremost the financial health is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. We'll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, potential investors would need to take a closer look, and I suggest you dig deeper yourself into 5PC here.

5PC’s Debt (And Cash Flows)

5PC has shrunk its total debt levels in the last twelve months, from S$92m to S$66m , which also accounts for long term debt. With this debt repayment, 5PC currently has S$6.5m remaining in cash and short-term investments to keep the business going. Additionally, 5PC has produced S$21m in operating cash flow during the same period of time, resulting in an operating cash to total debt ratio of 32%, signalling that 5PC’s debt is appropriately covered by operating cash.

Can 5PC pay its short-term liabilities?

With current liabilities at S$64m, the company has been able to meet these obligations given the level of current assets of S$233m, with a current ratio of 3.62x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.

Is 5PC’s debt level acceptable?

With a debt-to-equity ratio of 26%, 5PC's debt level may be seen as prudent. This range is considered safe as 5PC is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.

Next Steps:

5PC has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for 5PC's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research Goodland Group to get a better picture of the stock by looking at:

1. Future Outlook: What are well-informed industry analysts predicting for 5PC’s future growth? Take a look at our free research report of analyst consensus for 5PC’s outlook.

2. Valuation: What is 5PC 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 5PC is currently mispriced by the market.

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.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.