Yongnam Holdings Limited (SGX:AXB) is a small-cap stock with a market capitalization of S$133.26m. 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 AXB is loss-making right now, it’s crucial to understand 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. However, I know these factors are very high-level, so I recommend you dig deeper yourself into AXB here.

How much cash does AXB generate through its operations?

AXB’s debt level has been constant at around S$112.05m over the previous year comprising of short- and long-term debt. At this stable level of debt, the current cash and short-term investment levels stands at S$14.76m , ready to deploy into the business. Moving onto cash from operations, its small level of operating cash flow means calculating cash-to-debt wouldn’t be too useful, 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 assess some of AXB’s operating efficiency ratios such as ROA here.

Can AXB meet its short-term obligations with the cash in hand?

At the current liabilities level of S$122.20m liabilities, it seems that the business has been able to meet these commitments with a current assets level of S$180.45m, leading to a 1.48x current account ratio. For Construction companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.

Is AXB’s debt level acceptable?

AXB’s level of debt is appropriate relative to its total equity, at 39.70%. This range is considered safe as AXB is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. Risk around debt is very low for AXB, and the company also has the ability and headroom to increase debt if needed going forward.

Next Steps:

AXB’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 exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how AXB has been performing in the past. I recommend you continue to research Yongnam Holdings to get a better picture of the stock by looking at: