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While small-cap stocks, such as OKP Holdings Limited (SGX:5CF) with its market cap of S$74.0m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, understanding the company’s financial health becomes vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, this commentary is still very high-level, so I’d encourage you to dig deeper yourself into 5CF here.
How much cash does 5CF generate through its operations?
Over the past year, 5CF has ramped up its debt from S$2.6m to S$29.4m , which comprises of short- and long-term debt. With this increase in debt, 5CF’s cash and short-term investments stands at S$67.2m , ready to deploy into the business. Additionally, 5CF has generated S$4.0m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 13.7%, meaning that 5CF’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 5CF’s case, it is able to generate 0.14x cash from its debt capital.
Can 5CF meet its short-term obligations with the cash in hand?
At the current liabilities level of S$37.4m liabilities, the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.42x. Usually, for Construction companies, this is a suitable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can 5CF service its debt comfortably?
With debt at 24.6% of equity, 5CF may be thought of as appropriately levered. 5CF is not taking on too much debt commitment, which may be constraining for future growth.
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5CF’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 an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure 5CF has company-specific issues impacting its capital structure decisions. You should continue to research OKP Holdings to get a more holistic view of the stock by looking at:
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Future Outlook: What are well-informed industry analysts predicting for 5CF’s future growth? Take a look at our free research report of analyst consensus for 5CF’s outlook.
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Historical Performance: What has 5CF’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.
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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 past 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. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.