SingHaiyi Group Ltd. (SGX:5H0): Time For A Financial Health Check
Investors are always looking for growth in small-cap stocks like SingHaiyi Group Ltd. (SGX:5H0), with a market cap of S$392m. However, an important fact which most ignore is: how financially healthy is the business? Understanding the company's financial health becomes essential, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. The following basic checks can help you get a picture of the company's balance sheet strength. However, potential investors would need to take a closer look, and I suggest you dig deeper yourself into 5H0 here.
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5H0’s Debt (And Cash Flows)
5H0's debt levels surged from S$148m to S$429m over the last 12 months , which accounts for long term debt. With this increase in debt, the current cash and short-term investment levels stands at S$186m , ready to be used for running the business. We note it produced negative cash flow over the last twelve months. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of 5H0’s operating efficiency ratios such as ROA here.
Can 5H0 meet its short-term obligations with the cash in hand?
At the current liabilities level of S$118m, it appears that the company has been able to meet these obligations given the level of current assets of S$808m, with a current ratio of 6.86x. The current ratio is the number you get when you divide current assets by current liabilities. However, a ratio above 3x may be considered excessive by some investors, yet this is not usually a major negative for a company.
Is 5H0’s debt level acceptable?
5H0 is a relatively highly levered company with a debt-to-equity of 65%. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses.
Next Steps:
Although 5H0’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. Keep in mind I haven't considered other factors such as how 5H0 has been performing in the past. I suggest you continue to research SingHaiyi Group to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for 5H0’s future growth? Take a look at our free research report of analyst consensus for 5H0’s outlook.
Historical Performance: What has 5H0'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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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.
