Stocks with market capitalization between $2B and $10B, such as Golden Agri-Resources Ltd (SGX:E5H) with a size of S$3.4b, do not attract as much attention from the investing community as do the small-caps and large-caps. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. E5H’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Don’t forget that this is a general and concentrated examination of Golden Agri-Resources’s financial health, so you should conduct further analysis into E5H here.
How much cash does E5H generate through its operations?
Over the past year, E5H has maintained its debt levels at around US$3.1b which accounts for long term debt. At this constant level of debt, the current cash and short-term investment levels stands at US$373m , ready to deploy into the business. On top of this, E5H has generated US$466m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 15%, meaning that E5H’s debt is not appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency for loss making companies since metrics such as return on asset (ROA) requires positive earnings. In E5H’s case, it is able to generate 0.15x cash from its debt capital.
Can E5H meet its short-term obligations with the cash in hand?
At the current liabilities level of US$2.5b, it seems that the business has been able to meet these commitments with a current assets level of US$2.7b, leading to a 1.11x current account ratio. Usually, for Food companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Can E5H service its debt comfortably?
E5H is a relatively highly levered company with a debt-to-equity of 79%. This is not unusual for mid-caps as debt tends to be a cheaper and faster source of funding for some businesses. But since E5H is presently loss-making, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
E5H’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. Since there is also no concerns around E5H’s liquidity needs, this may be its optimal capital structure for the time being. Keep in mind I haven’t considered other factors such as how E5H has been performing in the past. I recommend you continue to research Golden Agri-Resources to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for E5H’s future growth? Take a look at our free research report of analyst consensus for E5H’s outlook.
- Valuation: What is E5H 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 E5H 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 firstname.lastname@example.org.