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Investors are always looking for growth in small-cap stocks like YHI International Limited (SGX:BPF), with a market cap of S$131.53M. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. 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 BPF here.
Does BPF generate an acceptable amount of cash through operations?
BPF has shrunken its total debt levels in the last twelve months, from S$98.38M to S$85.38M , which comprises of short- and long-term debt. With this reduction in debt, BPF currently has S$54.36M remaining in cash and short-term investments for investing into the business. Additionally, BPF has produced S$22.68M in operating cash flow over the same time period, resulting in an operating cash to total debt ratio of 26.56%, signalling that BPF’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In BPF’s case, it is able to generate 0.27x cash from its debt capital.
Can BPF pay its short-term liabilities?
At the current liabilities level of S$109.05M liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.45x. Generally, for Retail Distributors companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does BPF face the risk of succumbing to its debt-load?
BPF’s level of debt is appropriate relative to its total equity, at 32.74%. This range is considered safe as BPF is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether BPF is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In BPF’s, case, the ratio of 3.48x suggests that interest is appropriately covered, which means that lenders may be less hesitant to lend out more funding as BPF’s high interest coverage is seen as responsible and safe practice.
Next Steps:
BPF has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how BPF has been performing in the past. I suggest you continue to research YHI International to get a better picture of the stock by looking at: