Yahoo Finance Are The Hour Glass Limited’s (SGX:AGS) Interest Costs Too High?
The Hour Glass Limited (SGX:AGS) is a small-cap stock with a market capitalization of S$454.73m. 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? Specialty Retail businesses operating in the environment facing headwinds from current disruption, even ones that are profitable, are more likely to be higher risk. Evaluating financial health as part of your investment thesis is crucial. I believe these basic checks tell most of the story you need to know. Though, I know these factors are very high-level, so I suggest you dig deeper yourself into AGS here.
How does AGS’s operating cash flow stack up against its debt?
Over the past year, AGS has maintained its debt levels at around S$49.66m – this includes both the current and long-term debt. At this stable level of debt, AGS’s cash and short-term investments stands at S$180.50m for investing into the business. Additionally, AGS has produced cash from operations of S$80.65m during the same period of time, resulting in an operating cash to total debt ratio of 162.42%, meaning that AGS’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In AGS’s case, it is able to generate 1.62x cash from its debt capital.
Can AGS meet its short-term obligations with the cash in hand?
At the current liabilities level of S$103.36m liabilities, it appears that the company has been able to meet these obligations given the level of current assets of S$483.53m, with a current ratio of 4.68x. However, anything above 3x is considered high and could mean that AGS has too much idle capital in low-earning investments.
Can AGS service its debt comfortably?
With debt at 9.56% of equity, AGS may be thought of as having low leverage. This range is considered safe as AGS is not taking on too much debt obligation, which may be constraining for future growth. We can test if AGS’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 AGS, the ratio of 216x suggests that interest is comfortably covered, which means that lenders may be inclined to lend more money to the company, as it is seen as safe in terms of payback.
Next Steps:
AGS has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. Furthermore, the company exhibits proper management of current assets and upcoming liabilities. This is only a rough assessment of financial health, and I’m sure AGS has company-specific issues impacting its capital structure decisions. You should continue to research Hour Glass to get a better picture of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for AGS’s future growth? Take a look at our free research report of analyst consensus for AGS’s outlook.
Valuation: What is AGS 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 AGS 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.
