Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Frasers Property Limited (SGX:TQ5), with a market cap of S$5.82B, are often out of the spotlight. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. Let’s take a look at TQ5’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into TQ5 here. View our latest analysis for Frasers Property
Does TQ5 generate an acceptable amount of cash through operations?
TQ5 has built up its total debt levels in the last twelve months, from S$9.91B to S$11.81B , which comprises of short- and long-term debt. With this rise in debt, TQ5’s cash and short-term investments stands at S$2.41B , ready to deploy into the business. On top of this, TQ5 has produced cash from operations of S$944.56M over the same time period, resulting in an operating cash to total debt ratio of 8.00%, indicating that TQ5’s current level of operating cash is not high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In TQ5’s case, it is able to generate 0.08x cash from its debt capital.
Can TQ5 meet its short-term obligations with the cash in hand?
With current liabilities at S$3.36B, the company has been able to meet these commitments with a current assets level of S$6.47B, leading to a 1.93x current account ratio. For Real Estate companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can TQ5 service its debt comfortably?
With a debt-to-equity ratio of 97.72%, TQ5 can be considered as an above-average leveraged company. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. 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 TQ5’s case, the ratio of 4.84x suggests that interest is appropriately covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.