Yahoo Finance How Financially Strong Is Amara Holdings Limited (SGX:A34)?
Amara Holdings Limited (SGX:A34) is a small-cap stock with a market capitalization of S$281.73m. 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 essential, since poor capital management may bring about bankruptcies, which occur at a higher rate for small-caps. I believe these basic checks tell most of the story you need to know. Though, this commentary is still very high-level, so I recommend you dig deeper yourself into A34 here.
How does A34’s operating cash flow stack up against its debt?
A34’s debt level has been constant at around S$326.28m over the previous year – this includes both the current and long-term debt. At this current level of debt, A34’s cash and short-term investments stands at S$8.98m , ready to deploy into the business. Additionally, A34 has generated cash from operations of S$1.08m in the last twelve months, resulting in an operating cash to total debt ratio of 0.33%, indicating that A34’s debt is not appropriately covered by operating cash. This ratio can also be a sign of operational efficiency as an alternative to return on assets. In A34’s case, it is able to generate 0.0033x cash from its debt capital.
Can A34 pay its short-term liabilities?
Looking at A34’s most recent S$97.66m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of S$121.63m, with a current ratio of 1.25x. Generally, for Hospitality companies, this is a reasonable ratio since there is a bit of a cash buffer without leaving too much capital in a low-return environment.
Can A34 service its debt comfortably?
With debt reaching 86.40% of equity, A34 may be thought of as relatively highly levered. 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 A34’s case, the ratio of 2.84x suggests that interest is not strongly covered, which means that lenders may refuse to lend the company more money, as it is seen as too risky in terms of default.
Next Steps:
A34’s debt and cash flow levels indicate room for improvement. Its cash flow coverage of less than a quarter of debt means that operating efficiency could be an issue. Though, 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 A34 has company-specific issues impacting its capital structure decisions. I recommend you continue to research Amara Holdings to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for A34’s future growth? Take a look at our free research report of analyst consensus for A34’s outlook.
Historical Performance: What has A34’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.
