New Silkroutes Group Limited (SGX:BMT) is a small-cap stock with a market capitalization of S$51.38M. 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? Oil and Gas companies, especially ones that are currently loss-making, 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. Nevertheless, I know these factors are very high-level, so I suggest you dig deeper yourself into BMT here.

How does BMT’s operating cash flow stack up against its debt?

Over the past year, BMT has borrowed debt capital of around US$9.69M made up of current and long term debt. With this growth in debt, BMT’s cash and short-term investments stands at US$30.89M , ready to deploy into the business. Additionally, BMT has produced cash from operations of US$17.16M in the last twelve months, resulting in an operating cash to total debt ratio of 177.20%, signalling that BMT’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires a positive net income. In BMT’s case, it is able to generate 1.77x cash from its debt capital.

Does BMT’s liquid assets cover its short-term commitments?

At the current liabilities level of US$47.82M liabilities, the company has been able to meet these commitments with a current assets level of US$68.27M, leading to a 1.43x current account ratio. Generally, for Oil and Gas companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

Can BMT service its debt comfortably?

With debt at 34.68% of equity, BMT may be thought of as appropriately levered. This range is considered safe as BMT is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Risk around debt is very low for BMT, and the company also has the ability and headroom to increase debt if needed going forward.

Next Steps:

BMT’s debt level is appropriate for a company its size, and it is also able to generate sufficient cash flow coverage, meaning it has been able to put its debt in good use. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure BMT has company-specific issues impacting its capital structure decisions. I suggest you continue to research New Silkroutes Group to get a more holistic view of the stock by looking at: