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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$3.1b, often get neglected by retail investors. Surprisingly though, when accounted for risk, mid-caps have delivered better returns compared to the two other categories of stocks. S59’s financial liquidity and debt position will be analysed in this article, to get an idea of whether the company can fund opportunities for strategic growth and maintain strength through economic downturns. Remember this is a very top-level look that focuses exclusively on financial health, so I recommend a deeper analysis into S59 here.
S59’s Debt (And Cash Flows)
S59 has shrunk its total debt levels in the last twelve months, from S$22m to S$19m , which also accounts for long term debt. With this debt payback, S59's cash and short-term investments stands at S$523m to keep the business going. Moreover, S59 has generated cash from operations of S$75m in the last twelve months, resulting in an operating cash to total debt ratio of 391%, meaning that S59’s debt is appropriately covered by operating cash.
Does S59’s liquid assets cover its short-term commitments?
With current liabilities at S$246m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 3.93x. The current ratio is the number you get when you divide current assets by current liabilities. 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.
Does S59 face the risk of succumbing to its debt-load?
S59’s level of debt is low relative to its total equity, at 1.2%. S59 is not taking on too much debt commitment, 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. Furthermore, the company will be able to pay all of its upcoming liabilities from its current short-term assets. Keep in mind I haven't considered other factors such as how S59 has been performing in the past. I suggest you continue to research SIA Engineering to get a more holistic view 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.
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 email@example.com. 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. Thank you for reading.