Boustead Projects Limited (SGX:AVM): Time For A Financial Health Check
Investors are always looking for growth in small-cap stocks like Boustead Projects Limited (SGX:AVM), with a market cap of S$248m. However, an important fact which most ignore is: how financially healthy is the business? Evaluating financial health as part of your investment thesis is essential, 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, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into AVM here.
Does AVM produce enough cash relative to debt?
AVM has shrunken its total debt levels in the last twelve months, from S$86m to S$79m – this includes long-term debt. With this debt payback, AVM currently has S$132m remaining in cash and short-term investments for investing into the business. Additionally, AVM has generated cash from operations of S$39m in the last twelve months, resulting in an operating cash to total debt ratio of 50%, indicating that AVM’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In AVM’s case, it is able to generate 0.5x cash from its debt capital.
Can AVM pay its short-term liabilities?
Looking at AVM’s S$134m in current liabilities, it appears that the company has been able to meet these obligations given the level of current assets of S$268m, with a current ratio of 1.99x. 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 AVM’s debt level acceptable?
With a debt-to-equity ratio of 29%, AVM’s debt level may be seen as prudent. This range is considered safe as AVM is not taking on too much debt obligation, which may be constraining for future growth.
Next Steps:
AVM has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how AVM has been performing in the past. I suggest you continue to research Boustead Projects to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AVM’s future growth? Take a look at our free research report of analyst consensus for AVM’s outlook.
Valuation: What is AVM 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 AVM 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.
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.
