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Yoma Strategic Holdings Ltd. (SGX:Z59) is a small-cap stock with a market capitalization of S$626m. 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 essential, 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. Nevertheless, potential investors would need to take a closer look, and I’d encourage you to dig deeper yourself into Z59 here.
Z59’s Debt (And Cash Flows)
Over the past year, Z59 has ramped up its debt from S$218m to S$450m , which accounts for long term debt. With this growth in debt, Z59 currently has S$110m remaining in cash and short-term investments , ready to be used for running the business. Additionally, Z59 has produced cash from operations of S$8.6m over the same time period, leading to an operating cash to total debt ratio of 1.9%, indicating that Z59’s operating cash is less than its debt.
Can Z59 meet its short-term obligations with the cash in hand?
At the current liabilities level of S$266m, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 2.54x. The current ratio is the number you get when you divide current assets by current liabilities. For Real Estate companies, this ratio is within a sensible range since there's a sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Can Z59 service its debt comfortably?
With a debt-to-equity ratio of 49%, Z59 can be considered as an above-average leveraged company. This is somewhat unusual for small-caps companies, since lenders are often hesitant to provide attractive interest rates to less-established businesses.
Although Z59’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 Z59 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Yoma Strategic Holdings to get a better picture of the small-cap by looking at:
- Future Outlook: What are well-informed industry analysts predicting for Z59’s future growth? Take a look at our free research report of analyst consensus for Z59’s outlook.
- Valuation: What is Z59 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 Z59 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.