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Two important questions to ask before you buy ISDN Holdings Limited (SGX:I07) is, how it makes money and how it spends its cash. After investment, what’s left over is what belongs to you, the investor. This also determines how much the stock is worth. I will take you through I07’s cash flow health and the risk-return concept based on the stock’s cash flow yield, using the most recent financial data. This will help you think about the company from a cash perspective, which is a crucial factor to investing.
View our latest analysis for ISDN Holdings
Is ISDN Holdings generating enough cash?
ISDN Holdings generates cash through its day-to-day business, which needs to be reinvested into the company in order for it to continue operating. What remains after this expenditure, is known as its free cash flow, or FCF, for short.
The two ways to assess whether ISDN Holdings’s FCF is sufficient, is to compare the FCF yield to the market index yield, as well as determine whether the top-line operating cash flows will continue to grow.
Free Cash Flow = Operating Cash Flows – Net Capital Expenditure
Free Cash Flow Yield = Free Cash Flow / Enterprise Value
where Enterprise Value = Market Capitalisation + Net Debt
The business reinvests all its cash profits as well as borrows more money, to maintain and grow the company. This leads to a negative FCF, as well as negative FCF yield, in which case is not a very useful measure.
Does ISDN Holdings have a favourable cash flow trend?
ISDN Holdings’s FCF may be negative today, but is operating cash flows expected to improve in the future? Let’s examine the cash flow trend the company is anticipated to produce over time. Over the next few years, the company is expected to grow its cash from operations at a double-digit rate of 62%, ramping up from its current levels of S$15m to S$24m in two years’ time. Although this seems impressive, breaking down into year-on-year growth rates, I07’s operating cash flow growth is expected to decline from a rate of 46% next year, to 11% in the following year. But the overall future outlook seems buoyant if I07 can maintain its levels of capital expenditure as well.
Next Steps:
Now you know to keep cash flows in mind, You should continue to research ISDN Holdings to get a better picture of the company by looking at:
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Historical Performance: What has I07’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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Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on ISDN Holdings’s board and the CEO’s back ground.
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Other High-Performing Stocks: If you believe you should cushion your portfolio with something less risky, scroll through our free list of these great stocks here.
To help readers see past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.