Yahoo Finance Are China Jinjiang Environment Holding Company Limited’s (SGX:BWM) Interest Costs Too High?
While small-cap stocks, such as China Jinjiang Environment Holding Company Limited (SGX:BWM) with its market cap of S$667.55m, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. So, 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. Here are few basic financial health checks you should consider before taking the plunge. Nevertheless, this commentary is still very high-level, so I recommend you dig deeper yourself into BWM here.
How does BWM’s operating cash flow stack up against its debt?
BWM’s debt levels surged from S$3.26b to S$5.10b over the last 12 months – this includes both the current and long-term debt. With this growth in debt, BWM currently has S$1.12b remaining in cash and short-term investments , ready to deploy into the business. On top of this, BWM has generated cash from operations of S$616.65m during the same period of time, resulting in an operating cash to total debt ratio of 12.10%, indicating that BWM’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In BWM’s case, it is able to generate 0.12x cash from its debt capital.
Can BWM pay its short-term liabilities?
With current liabilities at S$3.80b, it appears that the company has been able to meet these obligations given the level of current assets of S$4.24b, with a current ratio of 1.11x. For Renewable Energy companies, this ratio is within a sensible range as there’s enough of a cash buffer without holding too capital in low return investments.
Is BWM’s debt level acceptable?
With total debt exceeding equities, BWM is considered a highly levered company. This is not unusual for small-caps as debt tends to be a cheaper and faster source of funding for some businesses. No matter how high the company’s debt, if it can easily cover the interest payments, it’s considered to be efficient with its use of excess leverage. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In BWM’s case, the ratio of 3.57x suggests that interest is appropriately 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.
Next Steps:
At its current level of cash flow coverage, BWM has room for improvement to better cushion for events which may require debt repayment. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. This is only a rough assessment of financial health, and I’m sure BWM has company-specific issues impacting its capital structure decisions. I suggest you continue to research China Jinjiang Environment Holding to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for BWM’s future growth? Take a look at our free research report of analyst consensus for BWM’s outlook.
Historical Performance: What has BWM’s returns been like over the past? Go into more detail in the past track record analysis and take a look at the free visual representations of our analysis for more clarity.
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.
