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Investors are always looking for growth in small-cap stocks like Bonvests Holdings Limited (SGX:B28), with a market cap of S$530.30M. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. However, I know these factors are very high-level, so I recommend you dig deeper yourself into B28 here.
Does B28 generate an acceptable amount of cash through operations?
Over the past year, B28 has maintained its debt levels at around S$215.39M made up of current and long term debt. At this current level of debt, B28’s cash and short-term investments stands at S$37.42M for investing into the business. On top of this, B28 has generated cash from operations of S$36.42M in the last twelve months, leading to an operating cash to total debt ratio of 16.91%, indicating that B28’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 B28’s case, it is able to generate 0.17x cash from its debt capital.
Does B28’s liquid assets cover its short-term commitments?
With current liabilities at S$128.35M, it appears that the company has not been able to meet these commitments with a current assets level of S$75.74M, leading to a 0.59x current account ratio. which is under the appropriate industry ratio of 3x.
Is B28’s debt level acceptable?
With debt at 24.64% of equity, B28 may be thought of as appropriately levered. B28 is not taking on too much debt commitment, which may be constraining for future growth. We can test if B28’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For B28, the ratio of 5.89x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as B28’s high interest coverage is seen as responsible and safe practice.
Next Steps:
B28’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. Furthermore, its lack of liquidity raises questions over current asset management practices for the small-cap. Keep in mind I haven’t considered other factors such as how B28 has been performing in the past. I suggest you continue to research Bonvests Holdings to get a more holistic view of the stock by looking at: