Yahoo Finance Is Chasen Holdings Limited (SGX:5NV) A Financially Sound Company?
While small-cap stocks, such as Chasen Holdings Limited (SGX:5NV) with its market cap of S$25.66m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Assessing first and foremost the financial health is vital, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, I know these factors are very high-level, so I recommend you dig deeper yourself into 5NV here.
Does 5NV produce enough cash relative to debt?
5NV has built up its total debt levels in the last twelve months, from S$33.64m to S$0 , which is made up of current and long term debt. With this rise in debt, the current cash and short-term investment levels stands at S$10.82m for investing into the business. Moreover, 5NV has generated S$9.29m in operating cash flow in the last twelve months, leading to an operating cash to total debt ratio of 26.25%, signalling that 5NV’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 5NV’s case, it is able to generate 0.26x cash from its debt capital.
Can 5NV pay its short-term liabilities?
With current liabilities at S$50.23m, the company has been able to meet these commitments with a current assets level of S$74.37m, leading to a 1.48x current account ratio. Generally, for Commercial Services companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does 5NV face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 47.84%, 5NV can be considered as an above-average leveraged company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. We can check to see whether 5NV 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 5NV’s, case, the ratio of 5.15x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving 5NV ample headroom to grow its debt facilities.
Next Steps:
Although 5NV’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. Since there is also no concerns around 5NV’s liquidity needs, this may be its optimal capital structure for the time being. This is only a rough assessment of financial health, and I’m sure 5NV has company-specific issues impacting its capital structure decisions. You should continue to research Chasen Holdings to get a better picture of the small-cap by looking at:
Future Outlook: What are well-informed industry analysts predicting for 5NV’s future growth? Take a look at our free research report of analyst consensus for 5NV’s outlook.
Valuation: What is 5NV 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 5NV 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 pass 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.
