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Investors are always looking for growth in small-cap stocks like Ipco International Limited (SGX:I11), with a market cap of S$12.36M. However, an important fact which most ignore is: how financially healthy is the business? Given that I11 is not presently profitable, it’s crucial to understand the current state of its operations and pathway to profitability. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into I11 here.
How does I11’s operating cash flow stack up against its debt?
I11’s debt levels have fallen from S$21.78M to S$20.67M over the last 12 months , which comprises of short- and long-term debt. With this debt payback, the current cash and short-term investment levels stands at S$9.79M for investing into the business. Moreover, I11 has generated S$6.87M in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 33.25%, signalling that I11’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency for loss making businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In I11’s case, it is able to generate 0.33x cash from its debt capital.
Can I11 meet its short-term obligations with the cash in hand?
At the current liabilities level of S$35.56M liabilities, the company has not been able to meet these commitments with a current assets level of S$32.10M, leading to a 0.9x current account ratio. which is under the appropriate industry ratio of 3x.
Is I11’s debt level acceptable?
With debt at 20.01% of equity, I11 may be thought of as appropriately levered. This range is considered safe as I11 is not taking on too much debt obligation, which may be constraining for future growth. Risk around debt is very low for I11, and the company also has the ability and headroom to increase debt if needed going forward.
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I11’s debt level is appropriate for a company its size. Furthermore, it is able to generate sufficient cash flow coverage, meaning it is able to put its debt in good use. However, 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 I11 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Ipco International to get a more holistic view of the stock by looking at: