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Hotel Grand Central Limited (SGX:H18) is a small-cap stock with a market capitalization of S$1.09B. 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? Assessing first and foremost the financial health 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. However, I know these factors are very high-level, so I’d encourage you to dig deeper yourself into H18 here.
Does H18 generate enough cash through operations?
Over the past year, H18 has reduced its debt from S$146.04M to S$100.73M , which is made up of current and long term debt. With this debt payback, H18’s cash and short-term investments stands at S$261.20M , ready to deploy into the business. Moreover, H18 has generated cash from operations of S$41.79M during the same period of time, resulting in an operating cash to total debt ratio of 41.48%, indicating that H18’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In H18’s case, it is able to generate 0.41x cash from its debt capital.
Can H18 meet its short-term obligations with the cash in hand?
Looking at H18’s most recent S$80.12M liabilities, it seems that the business has been able to meet these commitments with a current assets level of S$274.39M, leading to a 3.42x current account ratio. Though, anything above 3x is considered high and could mean that H18 has too much idle capital in low-earning investments.
Can H18 service its debt comfortably?
With a debt-to-equity ratio of 4.88%, H18’s debt level is relatively low. H18 is not taking on too much debt commitment, which may be constraining for future growth.
Next Steps:
H18’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure H18 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Hotel Grand Central to get a better picture of the stock by looking at:
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Valuation: What is H18 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 H18 is currently mispriced by the market.
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Historical Performance: What has H18’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.