What Does Keong Hong Holdings Limited's (SGX:5TT) Balance Sheet Tell Us About It?
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Investors are always looking for growth in small-cap stocks like Keong Hong Holdings Limited (SGX:5TT), with a market cap of S$111m. However, an important fact which most ignore is: how financially healthy is the business? Understanding the company's financial health becomes crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. We'll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, this is just a partial view of the stock, and I recommend you dig deeper yourself into 5TT here.
Does 5TT Produce Much Cash Relative To Its Debt?
5TT's debt levels surged from S$102m to S$128m over the last 12 months , which includes long-term debt. With this increase in debt, 5TT's cash and short-term investments stands at S$50m to keep the business going. Moving on, operating cash flow was negative over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can take a look at some of 5TT’s operating efficiency ratios such as ROA here.
Can 5TT meet its short-term obligations with the cash in hand?
Looking at 5TT’s S$167m in current liabilities, the company has been able to meet these commitments with a current assets level of S$182m, leading to a 1.09x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. For Construction companies, this ratio is within a sensible range since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is 5TT’s debt level acceptable?
With debt reaching 58% of equity, 5TT may be thought of as relatively highly levered. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses.
Next Steps:
5TT’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. I admit this is a fairly basic analysis for 5TT's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Keong Hong Holdings to get a more holistic view of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for 5TT’s future growth? Take a look at our free research report of analyst consensus for 5TT’s outlook.
Valuation: What is 5TT worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether 5TT is currently mispriced by the market.
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.
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If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.
