Wing Tai Holdings Limited (SGX:W05) is a small-cap stock with a market capitalization of S$1.47b. 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? Evaluating financial health as part of your investment thesis is crucial, since poor capital management may bring about 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. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into W05 here.
How does W05’s operating cash flow stack up against its debt?
Over the past year, W05 has reduced its debt from S$1.38b to S$938.61m , which is made up of current and long term debt. With this debt payback, the current cash and short-term investment levels stands at S$886.35m for investing into the business. Moreover, W05 has generated cash from operations of S$139.48m in the last twelve months, leading to an operating cash to total debt ratio of 14.86%, signalling that W05’s operating cash is not sufficient to cover its debt. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In W05’s case, it is able to generate 0.15x cash from its debt capital.
Does W05’s liquid assets cover its short-term commitments?
At the current liabilities level of S$216.00m liabilities, it appears that the company has been able to meet these commitments with a current assets level of S$1.99b, leading to a 9.22x current account ratio. Though, anything about 3x may be excessive, since W05 may be leaving too much capital in low-earning investments.
Does W05 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 23.20%, W05’s debt level may be seen as prudent. This range is considered safe as W05 is not taking on too much debt obligation, which may be constraining for future growth.
W05’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 exhibits an ability to meet its near term obligations should an adverse event occur. Keep in mind I haven’t considered other factors such as how W05 has been performing in the past. You should continue to research Wing Tai Holdings to get a more holistic view of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for W05’s future growth? Take a look at our free research report of analyst consensus for W05’s outlook.
- Valuation: What is W05 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 W05 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.