Yahoo Finance How Financially Strong Is Banyan Tree Holdings Limited (SGX:B58)?
Investors are always looking for growth in small-cap stocks like Banyan Tree Holdings Limited (SGX:B58), with a market cap of S$458.00m. However, an important fact which most ignore is: how financially healthy is the business? Assessing first and foremost the financial health is essential, 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 suggest you dig deeper yourself into B58 here.
How does B58’s operating cash flow stack up against its debt?
B58 has sustained its debt level by about S$644.07m over the last 12 months made up of current and long term debt. At this stable level of debt, B58’s cash and short-term investments stands at S$160.12m for investing into the business. Moving onto cash from operations, its trivial cash flows from operations make the cash-to-debt ratio less useful to us, though these low levels of cash means that operational efficiency is worth a look. For this article’s sake, I won’t be looking at this today, but you can examine some of B58’s operating efficiency ratios such as ROA here.
Does B58’s liquid assets cover its short-term commitments?
With current liabilities at S$407.59m, the company has been able to meet these commitments with a current assets level of S$610.00m, leading to a 1.5x current account ratio. 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.
Does B58 face the risk of succumbing to its debt-load?
With a debt-to-equity ratio of 78.53%, B58 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 test if B58’s debt levels are sustainable by measuring interest payments against earnings of a company. Ideally, earnings before interest and tax (EBIT) should cover net interest by at least three times. For B58, the ratio of less than 0.1x suggests is not appropriately covered debtors may be less inclined to loan the company more money, reducing its headroom for growth through debt.
Next Steps:
B58’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. However, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how B58 has been performing in the past. I recommend you continue to research Banyan Tree Holdings to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for B58’s future growth? Take a look at our free research report of analyst consensus for B58’s outlook.
Valuation: What is B58 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 B58 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.
