What You Should Know About Raffles Medical Group Ltd's (SGX:BSL) Financial Strength

Simply Wall St

Sat, Apr 6, 2019, 8:24 PM

Investors are always looking for growth in small-cap stocks like Raffles Medical Group Ltd (SGX:BSL), with a market cap of S$1.9b. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Let's work through some financial health checks you may wish to consider if you're interested in this stock. However, this is not a comprehensive overview, so I suggest you dig deeper yourself into BSL here.

BSL’s Debt (And Cash Flows)

BSL has built up its total debt levels in the last twelve months, from S$81m to S$119m , which accounts for long term debt. With this rise in debt, the current cash and short-term investment levels stands at S$106m , ready to be used for running the business. Additionally, BSL has generated S$92m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 77%, indicating that BSL’s current level of operating cash is high enough to cover debt.

Can BSL meet its short-term obligations with the cash in hand?

At the current liabilities level of S$186m, it appears that the company has been able to meet these commitments with a current assets level of S$199m, leading to a 1.07x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. Generally, for Healthcare companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Does BSL face the risk of succumbing to its debt-load?

With a debt-to-equity ratio of 15%, BSL's debt level may be seen as prudent. BSL is not taking on too much debt commitment, which may be constraining for future growth. We can check to see whether BSL is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In BSL's, case, the ratio of 804x suggests that interest is comfortably covered, which means that debtors may be willing to loan the company more money, giving BSL ample headroom to grow its debt facilities.

Next Steps:

BSL’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, 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 BSL has company-specific issues impacting its capital structure decisions. You should continue to research Raffles Medical Group to get a better picture of the stock by looking at: