Small and large cap stocks are widely popular for a variety of reasons, however, mid-cap companies such as SIA Engineering Company Limited (SGX:S59), with a market cap of S$2.8b, often get neglected by retail investors. However, generally ignored mid-caps have historically delivered better risk-adjusted returns than the two other categories of stocks. Let’s take a look at S59’s debt concentration and assess their financial liquidity to get an idea of their ability to fund strategic acquisitions and grow through cyclical pressures. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into S59 here.
How much cash does S59 generate through its operations?
S59 has shrunken its total debt levels in the last twelve months, from S$27m to S$21m , which includes long-term debt. With this debt payback, S59 currently has S$455m remaining in cash and short-term investments for investing into the business. On top of this, S59 has produced S$86m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 410%, meaning that S59’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 S59’s case, it is able to generate 4.1x cash from its debt capital.
Can S59 pay its short-term liabilities?
With current liabilities at S$234m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.72x. Having said that, a ratio greater than 3x may be considered by some to be quite high, however this is not necessarily a negative for the company.
Can S59 service its debt comfortably?
With a debt-to-equity ratio of 1.4%, S59’s debt level is relatively low. This range is considered safe as S59 is not taking on too much debt obligation, which may be constraining for future growth.
S59 has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure S59 has company-specific issues impacting its capital structure decisions. I recommend you continue to research SIA Engineering to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for S59’s future growth? Take a look at our free research report of analyst consensus for S59’s outlook.
- Valuation: What is S59 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 S59 is currently mispriced by the market.
- 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 email@example.com.