Is Goodland Group Limited’s (SGX:5PC) Balance Sheet A Threat To Its Future?
Goodland Group Limited (SGX:5PC) is a small-cap stock with a market capitalization of S$104.60M. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? So, 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. I believe these basic checks tell most of the story you need to know. However, I know these factors are very high-level, so I recommend you dig deeper yourself into 5PC here.
Does 5PC generate enough cash through operations?
5PC’s debt levels have fallen from S$152.10M to S$108.53M over the last 12 months – this includes both the current and long-term debt. With this debt payback, the current cash and short-term investment levels stands at S$25.40M , ready to deploy into the business. Additionally, 5PC has produced cash from operations of S$38.28M during the same period of time, resulting in an operating cash to total debt ratio of 35.27%, meaning that 5PC’s debt is appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In 5PC’s case, it is able to generate 0.35x cash from its debt capital.
Does 5PC’s liquid assets cover its short-term commitments?
With current liabilities at S$98.94M, it seems that the business has been able to meet these obligations given the level of current assets of S$274.61M, with a current ratio of 2.78x. For Real Estate companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Does 5PC face the risk of succumbing to its debt-load?
With debt at 35.85% of equity, 5PC may be thought of as appropriately levered. This range is considered safe as 5PC is not taking on too much debt obligation, which may be constraining for future growth. We can check to see whether 5PC is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In 5PC’s, case, the ratio of 2.24x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as 5PC’s low interest coverage already puts the company at higher risk of default.
Next Steps:
5PC’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. In addition to this, the company exhibits an ability to meet its near term obligations should an adverse event occur. I admit this is a fairly basic analysis for 5PC’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Goodland Group to get a more holistic view of the stock by looking at:
1. Valuation: What is 5PC 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 5PC is currently mispriced by the market.
2. Historical Performance: What has 5PC’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.
3. 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.
