While small-cap stocks, such as CosmoSteel Holdings Limited (SGX:B9S) with its market cap of S$30.49M, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Energy Services companies, especially ones that are currently loss-making, are more likely to be higher risk. Assessing first and foremost the financial health is vital. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Nevertheless, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into B9S here.
How does B9S’s operating cash flow stack up against its debt?
Over the past year, B9S has ramped up its debt from S$18.18M to S$32.17M – this includes both the current and long-term debt. With this growth in debt, the current cash and short-term investment levels stands at S$22.90M for investing into the business. On top of this, B9S has produced cash from operations of S$13.78M in the last twelve months, resulting in an operating cash to total debt ratio of 42.84%, indicating that B9S’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for unprofitable companies as traditional metrics such as return on asset (ROA) requires a positive net income. In B9S’s case, it is able to generate 0.43x cash from its debt capital.
Can B9S meet its short-term obligations with the cash in hand?
Looking at B9S’s most recent S$37.09M liabilities, it appears that the company has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.22x. However, a ratio greater than 3x may be considered as too high, as B9S could be holding too much capital in a low-return investment environment.
Does B9S face the risk of succumbing to its debt-load?
B9S’s level of debt is appropriate relative to its total equity, at 29.75%. This range is considered safe as B9S is not taking on too much debt obligation, which may be constraining for future growth. B9S’s risk around capital structure is low, and the company has the headroom and ability to raise debt should it need to in the future.
B9S’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for B9S’s financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research CosmoSteel Holdings to get a better picture of the stock by looking at:
- Historical Performance: What has B9S’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.
To help readers see pass 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.