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Is Jardine Cycle & Carriage Limited’s (SGX:C07) Balance Sheet A Threat To Its Future?

Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Jardine Cycle & Carriage Limited (SGX:C07) with a market-capitalization of S$11.8b, rarely draw their attention. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. Let’s take a look at C07’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Don’t forget that this is a general and concentrated examination of Jardine Cycle & Carriage’s financial health, so you should conduct further analysis into C07 here.

See our latest analysis for Jardine Cycle & Carriage

How does C07’s operating cash flow stack up against its debt?

C07’s debt levels surged from US$5.9b to US$7.0b over the last 12 months , which is made up of current and long term debt. With this growth in debt, C07 currently has US$1.8b remaining in cash and short-term investments for investing into the business. On top of this, C07 has produced US$1.4b in operating cash flow during the same period of time, leading to an operating cash to total debt ratio of 20%, meaning that C07’s current level of operating cash is high enough to cover debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In C07’s case, it is able to generate 0.2x cash from its debt capital.

Does C07’s liquid assets cover its short-term commitments?

At the current liabilities level of US$8.5b liabilities, it seems that the business has been able to meet these commitments with a current assets level of US$9.4b, leading to a 1.11x current account ratio. Generally, for Retail Distributors companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.

SGX:C07 Historical Debt October 31st 18

Is C07’s debt level acceptable?

With debt reaching 55% of equity, C07 may be thought of as relatively highly levered. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if C07’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For C07, the ratio of 134x suggests that interest is comfortably covered, which means that lenders may be less hesitant to lend out more funding as C07’s high interest coverage is seen as responsible and safe practice.

Next Steps:

C07’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how C07 has been performing in the past. You should continue to research Jardine Cycle & Carriage to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for C07’s future growth? Take a look at our free research report of analyst consensus for C07’s outlook.
  2. Valuation: What is C07 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 C07 is currently mispriced by the market.
  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 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 editorial-team@simplywallst.com.