PSL Holdings Limited (SGX:BLL) is a small-cap stock with a market capitalization of S$11.69M. 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? Since BLL is loss-making right now, it’s crucial to evaluate the current state of its operations and pathway to profitability. I believe these basic checks tell most of the story you need to know. Nevertheless, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into BLL here.
Does BLL generate an acceptable amount of cash through operations?
BLL has shrunken its total debt levels in the last twelve months, from S$15.28M to S$2.74M – this includes both the current and long-term debt. With this debt repayment, BLL’s cash and short-term investments stands at S$11.25M , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of BLL’s operating efficiency ratios such as ROA here.
Can BLL pay its short-term liabilities?
With current liabilities at S$6.52M, it seems that the business has been able to meet these commitments with a current assets level of S$37.55M, leading to a 5.76x current account ratio. However, anything above 3x is considered high and could mean that BLL has too much idle capital in low-earning investments.
Can BLL service its debt comfortably?
With debt at 7.26% of equity, BLL may be thought of as having low leverage. BLL is not taking on too much debt commitment, which may be constraining for future growth. Investors’ risk associated with debt is virtually non-existent with BLL, and the company has plenty of headroom and ability to raise debt should it need to in the future.
Next Steps:
BLL’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven’t considered other factors such as how BLL has been performing in the past. You should continue to research PSL Holdings to get a better picture of the stock by looking at: