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While small-cap stocks, such as Hanwell Holdings Limited (SGX:DM0) with its market cap of S$122m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is 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 DM0 here.
How much cash does DM0 generate through its operations?
Over the past year, DM0 has ramped up its debt from S$45m to S$86m – this includes long-term debt. With this rise in debt, DM0 currently has S$143m remaining in cash and short-term investments for investing into the business. On top of this, DM0 has produced S$29m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 34%, indicating that DM0’s current level of operating cash is high enough to cover debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In DM0’s case, it is able to generate 0.34x cash from its debt capital.
Can DM0 meet its short-term obligations with the cash in hand?
Looking at DM0’s S$188m in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of S$397m, with a current ratio of 2.12x. Usually, for Food companies, this is a suitable ratio as there’s enough of a cash buffer without holding too much capital in low return investments.
Does DM0 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 25%, DM0’s debt level may be seen as prudent. DM0 is not taking on too much debt commitment, which may be constraining for future growth.
DM0 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at an appropriate level. Furthermore, the company exhibits an ability to meet its near term obligations should an adverse event occur. This is only a rough assessment of financial health, and I’m sure DM0 has company-specific issues impacting its capital structure decisions. You should continue to research Hanwell Holdings to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for DM0’s future growth? Take a look at our free research report of analyst consensus for DM0’s outlook.
- Historical Performance: What has DM0’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 firstname.lastname@example.org. 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. On rare occasion, data errors may occur. Thank you for reading.