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Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as SATS Ltd. (SGX:S58), with a market cap of S$5.4b, often get neglected by retail investors. Despite this, the two other categories have lagged behind the risk-adjusted returns of commonly ignored mid-cap stocks. Let’s take a look at S58’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of SATS’s financial health, so you should conduct further analysis into S58 here.
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How much cash does S58 generate through its operations?
Over the past year, S58 has reduced its debt from S$105m to S$97m – this includes long-term debt. With this reduction in debt, S58 currently has S$282m remaining in cash and short-term investments , ready to deploy into the business. Additionally, S58 has produced cash from operations of S$258m in the last twelve months, leading to an operating cash to total debt ratio of 267%, signalling that S58’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 S58’s case, it is able to generate 2.67x cash from its debt capital.
Can S58 meet its short-term obligations with the cash in hand?
Looking at S58’s S$368m in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of S$658m, with a current ratio of 1.79x. Generally, for Infrastructure companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can S58 service its debt comfortably?
With debt at 5.6% of equity, S58 may be thought of as having low leverage. This range is considered safe as S58 is not taking on too much debt obligation, which may be constraining for future growth.
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S58’s high cash coverage and low debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for S58’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research SATS to get a more holistic view of the stock by looking at: