Yahoo Finance Is Oxley Holdings Limited’s (SGX:5UX) Balance Sheet Strong Enough To Weather A Storm?
While small-cap stocks, such as Oxley Holdings Limited (SGX:5UX) with its market cap of S$1.74B, are popular for their explosive growth, investors should also be aware of their balance sheet to judge whether the company can survive a downturn. Evaluating financial health as part of your investment thesis is vital, as mismanagement of capital can lead to 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, given that I have not delve into the company-specifics, I’d encourage you to dig deeper yourself into 5UX here.
Does 5UX generate an acceptable amount of cash through operations?
Over the past year, 5UX has reduced its debt from S$2.69B to S$2.51B , which comprises of short- and long-term debt. With this reduction in debt, the current cash and short-term investment levels stands at S$413.55M for investing into the business. Additionally, 5UX has generated cash from operations of S$461.29M over the same time period, leading to an operating cash to total debt ratio of 18.41%, signalling that 5UX’s operating cash is not sufficient to cover its debt. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In 5UX’s case, it is able to generate 0.18x cash from its debt capital.
Does 5UX’s liquid assets cover its short-term commitments?
With current liabilities at S$1.58B, the company has been able to meet these obligations given the level of current assets of S$2.96B, with a current ratio of 1.87x. Generally, for Real Estate companies, this is a reasonable ratio since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Does 5UX face the risk of succumbing to its debt-load?
5UX is a highly-leveraged company with debt exceeding equity by over 100%. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can check to see whether 5UX is able to meet its debt obligations by looking at the net interest coverage ratio. A company generating earnings before interest and tax (EBIT) at least three times its net interest payments is considered financially sound. In 5UX’s, case, the ratio of 3.06x suggests that interest is appropriately 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:
At its current level of cash flow coverage, 5UX has room for improvement to better cushion for events which may require debt repayment. However, the company will be able to pay all of its upcoming liabilities from its current short-term assets. I admit this is a fairly basic analysis for 5UX’s financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research Oxley Holdings to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for 5UX’s future growth? Take a look at our free research report of analyst consensus for 5UX’s outlook.
Valuation: What is 5UX 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 5UX 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.
