Yahoo Finance Is RHT Health Trust (SGX:RF1U) A Financially Sound Company?
Investors are always looking for growth in small-cap stocks like RHT Health Trust (SGX:RF1U), with a market cap of S$610.59m. However, an important fact which most ignore is: how financially healthy is the business? Companies operating in the Healthcare industry, even ones that are profitable, are more likely to be higher risk. So, understanding the company’s financial health becomes vital. I believe these basic checks tell most of the story you need to know. Nevertheless, this commentary is still very high-level, so I suggest you dig deeper yourself into RF1U here.
How does RF1U’s operating cash flow stack up against its debt?
RF1U has built up its total debt levels in the last twelve months, from S$288.27m to S$0 , which comprises of short- and long-term debt. With this increase in debt, RF1U’s cash and short-term investments stands at S$51.01m , ready to deploy into the business. Moreover, RF1U has produced S$40.06m in operating cash flow over the same time period, leading to an operating cash to total debt ratio of 12.22%, indicating that RF1U’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 RF1U’s case, it is able to generate 0.12x cash from its debt capital.
Can RF1U meet its short-term obligations with the cash in hand?
With current liabilities at S$201.28m, the company has not maintained a sufficient level of current assets to meet its obligations, with the current ratio last standing at 0.36x, which is below the prudent industry ratio of 3x.
Can RF1U service its debt comfortably?
With debt reaching 49.49% of equity, RF1U may be thought of as relatively highly levered. This is not uncommon for a small-cap company given that debt tends to be lower-cost and at times, more accessible. We can test if RF1U’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 RF1U, the ratio of 7.09x suggests that interest is appropriately covered, which means that debtors may be willing to loan the company more money, giving RF1U ample headroom to grow its debt facilities.
Next Steps:
At its current level of cash flow coverage, RF1U has room for improvement to better cushion for events which may require debt repayment. In addition to this, its lack of liquidity raises questions over current asset management practices for the small-cap. This is only a rough assessment of financial health, and I’m sure RF1U has company-specific issues impacting its capital structure decisions. I recommend you continue to research RHT Health Trust to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for RF1U’s future growth? Take a look at our free research report of analyst consensus for RF1U’s outlook.
Valuation: What is RF1U 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 RF1U 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.
