Investors are always looking for growth in small-cap stocks like Samudera Shipping Line Ltd (SGX:S56), with a market cap of SGD121.06M. However, an important fact which most ignore is: how financially healthy is the business? Since S56 is loss-making right now, it’s essential to assess 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, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into S56 here.
Does S56 generate enough cash through operations?
Over the past year, S56 has reduced its debt from $106.8M to $84.7M , which comprises of short- and long-term debt. With this debt payback, the current cash and short-term investment levels stands at $54.8M , ready to deploy into the business. Moreover, S56 has generated cash from operations of $36.8M during the same period of time, resulting in an operating cash to total debt ratio of 0.43x, indicating that S56’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for unprofitable companies since metrics such as return on asset (ROA) requires positive earnings. In S56’s case, it is able to generate 0.43x cash from its debt capital.
Can S56 pay its short-term liabilities?
Looking at S56’s most recent $63.7M liabilities, the company has been able to meet these commitments with a current assets level of $119.6M, leading to a 1.88x current account ratio. Usually, for marine companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does S56 face the risk of succumbing to its debt-load?
With debt at 28.08% of equity, S56 may be thought of as appropriately levered. S56 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. Risk around debt is very low for S56, and the company also has the ability and headroom to increase debt if needed going forward.
Next Steps:
Are you a shareholder? S56’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. Given that its financial position may change. I suggest researching market expectations for S56’s future growth on our free analysis platform.
Are you a potential investor? S56’s low-debt position gives it headroom for future growth funding in the future. Moreover, its high liquidity means the company should continue to operate smoothly in the case of adverse events. To gain more conviction in the stock, you need to also analyse S56’s track record. You should continue your analysis by taking a look at S56’s past performance analysis on our free platform to figure out S56’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.