BH Global Corporation Limited (SGX:BQN) is a small-cap stock with a market capitalization of SGD24.60M. 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 BQN is loss-making right now, it’s crucial to understand the current state of its operations and pathway to profitability. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into BQN here.
Does BQN generate enough cash through operations?
BQN’s debt levels surged from SGD9.8M to SGD14.4M over the last 12 months , which is made up of current and long term debt. With this rise in debt, BQN’s cash and short-term investments stands at SGD8.4M , ready to deploy into the business. Additionally, BQN has generated SGD6.0M in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 0.42x, meaning that BQN’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for loss making companies as traditional metrics such as return on asset (ROA) requires positive earnings. In BQN’s case, it is able to generate 0.42x cash from its debt capital.
Can BQN pay its short-term liabilities?
At the current liabilities level of SGD35.6M liabilities, it seems that the business has been able to meet these obligations given the level of current assets of SGD54.9M, with a current ratio of 1.54x. For electrical companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can BQN service its debt comfortably?
BQN’s level of debt is appropriate relative to its total equity, at 21.30%. BQN is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for BQN, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
Are you a shareholder? BQN 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 will be able to pay all of its upcoming liabilities from its current short-term assets. Moving forward, its financial position may be different. I suggest keeping on top of market expectations for BQN’s future growth on our free analysis platform.