What Investors Should Know About Thai Beverage Public Company Limited’s (SGX:Y92) Financial Strength
A market capitalization of SGD24.36B puts Thai Beverage Public Company Limited (SGX:Y92) in the basket of stocks categorized as large-caps. These stocks draw significant attention from the investing community due to its size and liquidity. However, a more fundamental aspect of investing in large caps is its financial health. Why is it important? A major downturn in the energy industry has resulted in over 150 companies going bankrupt and has put more than 100 on the verge of a collapse, primarily due to excessive debt. Thus, it becomes utmost important for an investor to test a company’s resilience for such contingencies. In simple terms, I believe these three small calculations tell most of the story you need to know. View our latest analysis for Thai Beverage
Can Y92 service its debt comfortably?
Debt-to-equity ratio standards differ between industries, as some some are more capital-intensive than others, meaning they need more capital to carry out core operations. Generally, large-cap stocks are considered financially healthy if its ratio is below 40%. For Y92, the debt-to-equity ratio is 30.68%, which indicates that its debt is at an acceptable level. We can test if Y92’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings (EBIT) should cover interest by at least three times, therefore reducing concerns when profit is highly volatile. Y92’s interest on debt is sufficiently covered by earnings as it sits at around 30.04x. This means lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Does Y92 generate enough cash through operations?
A basic way to evaluate Y92’s debt management is to see whether the cash flow generated from the business is at a relatively high level compared to the debt capital invested. This is also a test for whether Y92 has the ability to repay its debt with cash from its business, which is less of a concern for large companies. In the case of Y92, operating cash flow turned out to be 0.73x its debt level over the past twelve months. A ratio of over 0.5x is a positive sign and shows that Y92 is generating more than enough cash from its core business, which should increase its potential to pay back near-term debt.
Next Steps:
Are you a shareholder? Y92’s high cash coverage and appropriate debt levels indicate its ability to utilise its borrowings efficiently in order to generate ample cash flow. Given that Y92’s financial situation could change over time, I suggest examining market expectations for Y92’s future growth on our free analysis platform.
Are you a potential investor? Although investors should analyse the serviceability of debt, it shouldn’t be viewed in isolation of other factors. Ultimately, debt is often used to fund or accelerate new projects that are expected to improve a company’s growth trajectory in the longer term. Therefore, I encourage potential investors to assess Y92’s Return on Capital Employed (ROCE) in order to see management’s track record at deploying funds in high-returning projects.
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.
