Green Build Technology Limited (SGX:Y06) is a small-cap stock with a market capitalization of S$44.40M. 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? Since Y06 is loss-making right now, it’s crucial to assess the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into Y06 here.

Does Y06 generate enough cash through operations?

Y06’s debt levels surged from CN¥433.38M to CN¥727.32M over the last 12 months , which is made up of current and long term debt. With this increase in debt, Y06 currently has CN¥301.26M remaining in cash and short-term investments for investing into the business. Moving onto cash from operations, its operating cash flow is not yet significant enough to calculate a meaningful cash-to-debt ratio, indicating that operational efficiency is something we’d need to take a look at. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of Y06’s operating efficiency ratios such as ROA here.

Does Y06’s liquid assets cover its short-term commitments?

At the current liabilities level of CN¥756.72M liabilities, it appears that the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.78x, which is below the prudent industry ratio of 3x.

Is Y06’s debt level acceptable?

Y06 is a highly-leveraged company with debt exceeding equity by over 100%. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since Y06 is currently loss-making, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.

Next Steps:

Y06’s high debt level indicates room for improvement. Furthermore, its cash flow coverage of less than a quarter of debt means that operating efficiency could also be an issue. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure Y06 has company-specific issues impacting its capital structure decisions. You should continue to research Green Build Technology to get a better picture of the stock by looking at: