Is Sinostar PEC Holdings Limited (SGX:C9Q) A Financially Sound Company?
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Sinostar PEC Holdings Limited (SGX:C9Q) is a small-cap stock with a market capitalization of S$131m. While investors primarily focus on the growth potential and competitive landscape of the small-cap companies, they end up ignoring a key aspect, which could be the biggest threat to its existence: its financial health. Why is it important? Understanding the company's financial health becomes vital, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. We'll look at some basic checks that can form a snapshot the company’s financial strength. However, this is just a partial view of the stock, and I’d encourage you to dig deeper yourself into C9Q here.
C9Q’s Debt (And Cash Flows)
Over the past year, C9Q has borrowed debt capital of around CN¥1.3b – which includes long-term debt. With this ramp up in debt, C9Q's cash and short-term investments stands at CN¥426m , ready to be used for running the business. On top of this, C9Q has produced cash from operations of CN¥371m in the last twelve months, leading to an operating cash to total debt ratio of 29%, indicating that C9Q’s debt is appropriately covered by operating cash.
Does C9Q’s liquid assets cover its short-term commitments?
At the current liabilities level of CN¥1.4b, the company may not have an easy time meeting these commitments with a current assets level of CN¥802m, leading to a current ratio of 0.57x. The current ratio is the number you get when you divide current assets by current liabilities.
Does C9Q face the risk of succumbing to its debt-load?
With total debt exceeding equity, C9Q is considered a highly levered company. This is a bit unusual for a small-cap stock, since they generally have a harder time borrowing than large more established companies.
Next Steps:
C9Q’s high cash coverage means that, although its debt levels are high, the company is able to utilise its borrowings efficiently in order to generate cash flow. However, its lack of liquidity raises questions over current asset management practices for the small-cap. I admit this is a fairly basic analysis for C9Q's financial health. Other important fundamentals need to be considered alongside. You should continue to research Sinostar PEC Holdings to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for C9Q’s future growth? Take a look at our free research report of analyst consensus for C9Q’s outlook.
Valuation: What is C9Q 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 C9Q 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 editorial-team@simplywallst.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.
