While small-cap stocks, such as Ramba Energy Limited (SGX:R14) with its market cap of SGD49.30M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Given that R14 is not presently profitable, it’s vital to evaluate 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. Nevertheless, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into R14 here.
How does R14’s operating cash flow stack up against its debt?
R14’s debt levels have fallen from SGD6.7M to SGD6.0M over the last 12 months , which is made up of current and long term debt. With this debt repayment, R14’s cash and short-term investments stands at SGD11.7M , 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 take a look at some of R14’s operating efficiency ratios such as ROA here.
Can R14 pay its short-term liabilities?
Looking at R14’s most recent SGD48.5M liabilities, it appears that the company has been able to meet these commitments with a current assets level of SGD56.4M, leading to a 1.16x current account ratio. Usually, for logistics companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Does R14 face the risk of succumbing to its debt-load?
With debt at 33.28% of equity, R14 may be thought of as appropriately levered. R14 is not taking on too much debt commitment, which may be constraining for future growth. Risk around debt is very low for R14, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
Are you a shareholder? R14’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. In addition to this, the company may not be able to pay all of its upcoming liabilities from its current short-term assets. Given that R14’s financial situation may change. You should always be keeping on top of market expectations for R14’s future growth on our free analysis platform.
Are you a potential investor? R14 seems to have a sensible level of debt, meaning there’s some room to take on more debt if needed. But its current cash flow coverage of existing debt, in addition to the low liquidity, is concerning. Though, keep in mind that this is a point-in-time analysis, and today’s performance may not be representative of R14’s track record. You should continue your analysis by taking a look at R14’s past performance analysis on our free platform to figure out R14’s financial health position.
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.