Investors are always looking for growth in small-cap stocks like Soilbuild Construction Group Ltd (SGX:S7P), with a market cap of S$107.68M. However, an important fact which most ignore is: how financially healthy is the business? Since S7P is loss-making right now, it’s crucial to evaluate 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. Though, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into S7P here.

Does S7P generate enough cash through operations?

S7P has increased its debt level by about S$11.24M over the last 12 months made up of current and long term debt. With this growth in debt, S7P currently has S$27.87M remaining in cash and short-term investments for investing into the business. On top of this, S7P has generated cash from operations of S$29.44M in the last twelve months, resulting in an operating cash to total debt ratio of 261.84%, signalling that S7P’s operating cash is sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses since metrics such as return on asset (ROA) requires positive earnings. In S7P’s case, it is able to generate 2.62x cash from its debt capital.

Can S7P pay its short-term liabilities?

At the current liabilities level of S$98.53M liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.01x. Usually, for Construction companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

Does S7P face the risk of succumbing to its debt-load?

With a debt-to-equity ratio of 13.55%, S7P’s debt level may be seen as prudent. S7P is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Investors’ risk associated with debt is very low with S7P, and the company has plenty of headroom and ability to raise debt should it need to in the future.

Next Steps:

S7P has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, 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 S7P has company-specific issues impacting its capital structure decisions. I recommend you continue to research Soilbuild Construction Group to get a better picture of the stock by looking at: