While small-cap stocks, such as SingHaiyi Group Ltd (SGX:5H0) with its market cap of S$413.32M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is crucial, 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, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into 5H0 here.
How does 5H0’s operating cash flow stack up against its debt?
5H0 has shrunken its total debt levels in the last twelve months, from S$266.96M to S$206.23M , which comprises of short- and long-term debt. With this debt payback, the current cash and short-term investment levels stands at S$194.03M for investing into the business. On top of this, 5H0 has produced S$172.66M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 83.72%, signalling that 5H0’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 5H0’s case, it is able to generate 0.84x cash from its debt capital.
Can 5H0 pay its short-term liabilities?
With current liabilities at S$144.72M, the company has been able to meet these commitments with a current assets level of S$629.70M, leading to a 4.35x current account ratio. However, anything above 3x is considered high and could mean that 5H0 has too much idle capital in low-earning investments.
Does 5H0 face the risk of succumbing to its debt-load?
5H0’s level of debt is appropriate relative to its total equity, at 30.87%. 5H0 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders.
Next Steps:
5H0 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 will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for 5H0’s financial health. Other important fundamentals need to be considered alongside. You should continue to research SingHaiyi Group to get a better picture of the stock by looking at:
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Valuation: What is 5H0 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 5H0 is currently mispriced by the market.
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Historical Performance: What has 5H0’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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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.