Soilbuild Construction Group Ltd. (SGX:S7P) is a small-cap stock with a market capitalization of S$50m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Given that S7P is not presently profitable, it’s vital to evaluate the current state of its operations and pathway to profitability. 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’d encourage you to dig deeper yourself into S7P here.
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Does S7P Produce Much Cash Relative To Its Debt?
S7P has built up its total debt levels in the last twelve months, from S$23m to S$68m – this includes long-term debt. With this rise in debt, the current cash and short-term investment levels stands at S$13m 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 assess some of S7P’s operating efficiency ratios such as ROA here.
Can S7P meet its short-term obligations with the cash in hand?
With current liabilities at S$108m, it appears that the company may not have an easy time meeting these commitments with a current assets level of S$92m, leading to a current ratio of 0.85x. The current ratio is calculated by dividing current assets by current liabilities.
Does S7P face the risk of succumbing to its debt-load?
S7P is a relatively highly levered company with a debt-to-equity of 87%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses. However, since S7P is presently unprofitable, there’s a question of sustainability of its current operations. Running high debt, while not yet making money, can be risky in unexpected downturns as liquidity may dry up, making it hard to operate.
Although S7P’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet debt obligations which means its debt is being efficiently utilised. However, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I'm sure S7P has company-specific issues impacting its capital structure decisions. You should continue to research Soilbuild Construction Group to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for S7P’s future growth? Take a look at our free research report of analyst consensus for S7P’s outlook.
- Historical Performance: What has S7P'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.
- 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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