Small-caps and large-caps are wildly popular among investors; however, mid-cap stocks, such as Singapore Technologies Engineering Ltd (SGX:S63) with a market-capitalization of S$10.42b, rarely draw their attention. Despite this, commonly overlooked mid-caps have historically produced better risk-adjusted returns than their small and large-cap counterparts. This article will examine S63’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Don’t forget that this is a general and concentrated examination of Singapore Technologies Engineering’s financial health, so you should conduct further analysis into S63 here.
Does S63 produce enough cash relative to debt?
S63’s debt level has been constant at around S$1.02b over the previous year made up of current and long term debt. At this current level of debt, the current cash and short-term investment levels stands at S$1.17b for investing into the business. On top of this, S63 has produced S$807.2m in operating cash flow in the last twelve months, resulting in an operating cash to total debt ratio of 79.2%, signalling that S63’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 S63’s case, it is able to generate 0.79x cash from its debt capital.
Can S63 pay its short-term liabilities?
With current liabilities at S$4.26b, it appears that the company has been able to meet these obligations given the level of current assets of S$4.70b, with a current ratio of 1.1x. For Aerospace & Defense companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can S63 service its debt comfortably?
With a debt-to-equity ratio of 42.0%, S63 can be considered as an above-average leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether S63 is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In S63’s, case, the ratio of 18.68x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Although S63’s debt level is towards the higher end of the spectrum, its cash flow coverage seems adequate to meet obligations which means its debt is being efficiently utilised. This may mean this is an optimal capital structure for the business, given that it is also meeting its short-term commitment. This is only a rough assessment of financial health, and I’m sure S63 has company-specific issues impacting its capital structure decisions. You should continue to research Singapore Technologies Engineering to get a better picture of the mid-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for S63’s future growth? Take a look at our free research report of analyst consensus for S63’s outlook.
- Valuation: What is S63 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 S63 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.