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While small-cap stocks, such as S i2i Limited (SGX:BAI) with its market cap of S$35.56M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Telecom businesses operating in the environment facing headwinds from current disruption, even ones that are profitable, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is essential. I believe these basic checks tell most of the story you need to know. However, since I only look at basic financial figures, I recommend you dig deeper yourself into BAI here.

Does BAI generate enough cash through operations?

Over the past year, BAI has ramped up its debt from S$2.55M to S$7.38M . With this increase in debt, the current cash and short-term investment levels stands at S$14.19M for investing 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 take a look at some of BAI’s operating efficiency ratios such as ROA here.

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

At the current liabilities level of S$29.41M liabilities, the company has been able to meet these commitments with a current assets level of S$63.65M, leading to a 2.16x current account ratio. Generally, for Telecom companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.

Is BAI’s debt level acceptable?

With debt at 16.16% of equity, BAI may be thought of as appropriately levered. This range is considered safe as BAI is not taking on too much debt obligation, which can be restrictive and risky for equity-holders.

Next Steps:

BAI’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how BAI has been performing in the past. I recommend you continue to research S i2i to get a more holistic view of the stock by looking at:

• 1. Historical Performance: What has BAI’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.

• 2. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.