Investors are always looking for growth in small-cap stocks like Jadason Enterprises Ltd (SGX:J03), with a market cap of S$30.34m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Electronic industry, even ones that are profitable, are inclined towards being higher risk. Evaluating financial health as part of your investment thesis is essential. I believe these basic checks tell most of the story you need to know. Though, given that I have not delve into the company-specifics, I recommend you dig deeper yourself into J03 here.
How does J03’s operating cash flow stack up against its debt?
Over the past year, J03 has reduced its debt from S$9.36m to S$3.21m , which is mainly comprised of near term debt. With this debt payback, J03 currently has S$6.73m remaining in cash and short-term investments , ready to deploy into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can take a look at some of J03’s operating efficiency ratios such as ROA here.
Does J03’s liquid assets cover its short-term commitments?
At the current liabilities level of S$19.32m liabilities, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.73x. Usually, for Electronic companies, this is a suitable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Is J03’s debt level acceptable?
With debt at 4.96% of equity, J03 may be thought of as having low leverage. J03 is not taking on too much debt commitment, which can be restrictive and risky for equity-holders. We can check to see whether J03 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 J03’s, case, the ratio of 2.67x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as J03’s low interest coverage already puts the company at higher risk of default.
J03’s low debt is also met with low coverage. This indicates room for improvement as its cash flow covers less than a quarter of its borrowings, which means its operating efficiency could be better. However, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure J03 has company-specific issues impacting its capital structure decisions. You should continue to research Jadason Enterprises to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for J03’s future growth? Take a look at our free research report of analyst consensus for J03’s outlook.
- Historical Performance: What has J03’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.