Investors are always looking for growth in small-cap stocks like Sing Holdings Limited (SGX:5IC), with a market cap of SGD180.45M. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis 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. Though, this commentary is still very high-level, so I suggest you dig deeper yourself into 5IC here.
Does 5IC generate an acceptable amount of cash through operations?
Over the past year, 5IC has ramped up its debt from SGD125.7M to SGD226.5M – this includes both the current and long-term debt. With this increase in debt, the current cash and short-term investment levels stands at SGD56.0M for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can assess some of 5IC’s operating efficiency ratios such as ROA here.
Can 5IC meet its short-term obligations with the cash in hand?
At the current liabilities level of SGD21.8M liabilities, the company has been able to meet these obligations given the level of current assets of SGD509.1M, with a current ratio of 23.32x. Though, a ratio greater than 3x may be considered as too high, as 5IC could be holding too much capital in a low-return investment environment.
Is 5IC’s debt level acceptable?
With total debt exceeding equities, 5IC is considered a highly levered company. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In 5IC’s case, the ratio of 7.49x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as 5IC’s high interest coverage is seen as responsible and safe practice.
Next Steps:
5IC’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Though, its high liquidity means the company should continue to operate smoothly in the case of adverse events. I admit this is a fairly basic analysis for 5IC’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Sing Holdings to get a more holistic view of the stock by looking at: