While small-cap stocks, such as Koda Ltd (SGX:BJZ) with its market cap of S$54.14M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Companies operating in the Consumer Durables industry facing headwinds from current disruption, even ones that are profitable, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is crucial. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. However, I know these factors are very high-level, so I suggest you dig deeper yourself into BJZ here.
Does BJZ generate enough cash through operations?
Over the past year, BJZ has reduced its debt from US$1.57M to US$868.00K , which comprises of short- and long-term debt. With this debt repayment, BJZ currently has US$8.35M remaining in cash and short-term investments for investing into the business. On top of this, BJZ has generated cash from operations of US$6.02M in the last twelve months, leading to an operating cash to total debt ratio of 693.09%, meaning that BJZ’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In BJZ’s case, it is able to generate 6.93x cash from its debt capital.
Can BJZ pay its short-term liabilities?
Looking at BJZ’s most recent US$7.94M liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$22.15M, leading to a 2.79x current account ratio. For Consumer Durables companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does BJZ face the risk of succumbing to its debt-load?
With debt at 2.85% of equity, BJZ may be thought of as having low leverage. This range is considered safe as BJZ is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.
Next Steps:
BJZ has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how BJZ has been performing in the past. I suggest you continue to research Koda to get a more holistic view of the stock by looking at:
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1. Valuation: What is BJZ 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 BJZ is currently mispriced by the market.
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2. Historical Performance: What has BJZ’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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3. 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.