Yahoo Finance Are GuocoLand Limited’s (SGX:F17) Interest Costs Too High?
Investors are always looking for growth in small-cap stocks like GuocoLand Limited (SGX:F17), with a market cap of S$2.46B. However, an important fact which most ignore is: how financially healthy is the business? 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. Here are few basic financial health checks you should consider before taking the plunge. However, since I only look at basic financial figures, I suggest you dig deeper yourself into F17 here.
Does F17 generate enough cash through operations?
Over the past year, F17 has ramped up its debt from S$4.04B to S$4.67B , which is made up of current and long term debt. With this increase in debt, F17’s cash and short-term investments stands at S$1.12B , ready to deploy 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. As the purpose of this article is a high-level overview, I won’t be looking at this today, but you can examine some of F17’s operating efficiency ratios such as ROA here.
Can F17 pay its short-term liabilities?
With current liabilities at S$2.49B, it seems that the business has maintained a safe level of current assets to meet its obligations, with the current ratio last standing at 1.84x. Generally, for Real Estate companies, this is a reasonable ratio as there’s enough of a cash buffer without holding too capital in low return investments.
Is F17’s debt level acceptable?
F17 is a highly-leveraged company with debt exceeding equity by over 100%. 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 F17’s case, the ratio of 2.34x 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:
F17’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 F17 has been performing in the past. I suggest you continue to research GuocoLand to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for F17’s future growth? Take a look at our free research report of analyst consensus for F17’s outlook.
Valuation: What is F17 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 F17 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.
