Yahoo Finance What does Hong Fok Corporation Limited’s (SGX:H30) Balance Sheet Tell Us About Its Future?
Investors are always looking for growth in small-cap stocks like Hong Fok Corporation Limited (SGX:H30), with a market cap of S$464.33m. However, an important fact which most ignore is: how financially healthy is the business? So, understanding the company’s financial health becomes crucial, as mismanagement of capital can lead to bankruptcies, which occur at a higher rate for small-caps. Here are a few basic checks that are good enough to have a broad overview of the company’s financial strength. Though, given that I have not delve into the company-specifics, I suggest you dig deeper yourself into H30 here.
Does H30 produce enough cash relative to debt?
H30’s debt levels surged from S$734.71m to S$798.76m over the last 12 months , which comprises of short- and long-term debt. With this rise in debt, H30’s cash and short-term investments stands at S$51.08m , ready to deploy into the business. On top of this, H30 has generated cash from operations of S$10.25m in the last twelve months, leading to an operating cash to total debt ratio of 1.28%, meaning that H30’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 H30’s case, it is able to generate 0.013x cash from its debt capital.
Can H30 pay its short-term liabilities?
With current liabilities at S$249.52m, the company has been able to meet these obligations given the level of current assets of S$296.91m, with a current ratio of 1.19x. Usually, for Real Estate companies, this is a suitable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Does H30 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 36.50%, H30’s debt level may be seen as prudent. This range is considered safe as H30 is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can check to see whether H30 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 H30’s, case, the ratio of 0.88x suggests that interest is not strongly covered, which means that lenders may be more reluctant to lend out more funding as H30’s low interest coverage already puts the company at higher risk of default.
Next Steps:
H30’s cash flow coverage indicates it could improve its operating efficiency in order to meet demand for debt repayments should unforeseen events arise. 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 H30 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Hong Fok to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for H30’s future growth? Take a look at our free research report of analyst consensus for H30’s outlook.
Valuation: What is H30 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 H30 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.
