ASTI Holdings Limited (SGX:575) is a small-cap stock with a market capitalization of SGD51.07M. 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? Semiconductor companies, even ones that are profitable, tend to be high risk. So, understanding the company’s financial health becomes essential. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into 575 here.
Does 575 generate enough cash through operations?
Over the past year, 575 has ramped up its debt from SGD18.2M to SGD29.7M – this includes both the current and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at SGD40.9M , ready to deploy into the business. However, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can examine some of 575’s operating efficiency ratios such as ROA here.
Can 575 pay its short-term liabilities?
At the current liabilities level of SGD62.0M liabilities, it appears that the company has been able to meet these commitments with a current assets level of SGD104.0M, leading to a 1.68x current account ratio. For semiconductor 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.
Can 575 service its debt comfortably?
575 is a relatively highly levered company with a debt-to-equity of 45.73%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible.
Next Steps:
Are you a shareholder? 575’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. However, the company exhibits an ability to meet its near term obligations should an adverse event occur. Given that its financial position may change. You should always be keeping on top of market expectations for 575’s future growth on our free analysis platform.
Are you a potential investor? Though near-term liquidity isn’t an issue, 575’s high debt levels along with poor cash coverage may not build the strongest investment case. However, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of 575’s track record. As a following step, you should take a look at 575’s past performance analysis on our free platform to conclude on 575’s financial health.
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.