First Sponsor Group Limited (SGX:ADN): Time For A Financial Health Check
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
While small-cap stocks, such as First Sponsor Group Limited (SGX:ADN) with its market cap of S$1.0b, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Understanding the company's financial health becomes crucial, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. We'll look at some basic checks that can form a snapshot the company’s financial strength. Nevertheless, potential investors would need to take a closer look, and I suggest you dig deeper yourself into ADN here.
Does ADN Produce Much Cash Relative To Its Debt?
Over the past year, ADN has ramped up its debt from S$793m to S$890m – this includes long-term debt. With this growth in debt, ADN currently has S$326m remaining in cash and short-term investments to keep the business going. We note it produced negative cash flow over the last twelve months. For this article’s sake, I won’t be looking at this today, but you can assess some of ADN’s operating efficiency ratios such as ROA here.
Can ADN meet its short-term obligations with the cash in hand?
With current liabilities at S$479m, it appears that the company has been able to meet these commitments with a current assets level of S$1.1b, leading to a 2.37x current account ratio. The current ratio is the number you get when you divide current assets by current liabilities. For Real Estate 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.
Does ADN face the risk of succumbing to its debt-load?
ADN is a relatively highly levered company with a debt-to-equity of 60%. 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 ADN’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. Since there is also no concerns around ADN's liquidity needs, this may be its optimal capital structure for the time being. I admit this is a fairly basic analysis for ADN's financial health. Other important fundamentals need to be considered alongside. I recommend you continue to research First Sponsor Group to get a more holistic view of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for ADN’s future growth? Take a look at our free research report of analyst consensus for ADN’s outlook.
Historical Performance: What has ADN'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.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
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.
