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Small-cap and large-cap companies receive a lot of attention from investors, but mid-cap stocks like Venture Corporation Limited (SGX:V03), with a market cap of S$4.3b, are often out of the spotlight. While they are less talked about as an investment category, mid-cap risk-adjusted returns have generally been better than more commonly focused stocks that fall into the small- or large-cap categories. Let’s take a look at V03’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into V03 here.
See our latest analysis for Venture
V03’s Debt (And Cash Flows)
V03's outstanding debt and lease obligations have fallen from S$41m to S$18m over the last 12 months , which includes long-term debt and lease liabilities. The company's current cash and short-term investment levels stands at S$807m , ready to be used for running the business. Moreover, V03 has generated cash from operations of S$326m in the last twelve months, leading to an operating cash to total debt ratio of 1860%, indicating that V03’s debt is appropriately covered by operating cash.
Can V03 meet its short-term obligations with the cash in hand?
Looking at V03’s S$882m in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of S$2.4b, with a current ratio of 2.74x. The current ratio is the number you get when you divide current assets by current liabilities. Usually, for Electronic 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 V03 face the risk of succumbing to its debt-load?
Debt-to-equity ratio standards differ between industries, as some are more capital-intensive than others, meaning they need more capital to carry out core operations. As a rule of thumb, a financially healthy mid-cap should have a ratio less than 40%. The good news for investors is that Venture has virtually no debt. It has been operating its business with miniscule debt and utilising only its equity capital. Investors' risk associated with debt is virtually non-existent with V03, and the company has plenty of headroom and ability to raise debt should it need to in the future.