Yahoo Finance Are Sembcorp Marine Ltd’s (SGX:S51) Interest Costs Too High?
Small-caps and large-caps are wildly popular among investors, however, mid-cap stocks, such as Sembcorp Marine Ltd (SGX:S51), with a market capitalization of S$4.62B, rarely draw their attention from the investing community. However, generally ignored mid-caps have historically delivered better risk adjusted returns than both of those groups. Today we will look at S51’s financial liquidity and debt levels, which are strong indicators for whether the company can weather economic downturns or fund strategic acquisitions for future growth. Note that this information is centred entirely on financial health and is a top-level understanding, so I encourage you to look further into S51 here. View our latest analysis for Sembcorp Marine
How does S51’s operating cash flow stack up against its debt?
S51 has sustained its debt level by about S$4.11B over the last 12 months comprising of short- and long-term debt. At this current level of debt, S51 currently has S$1.30B remaining in cash and short-term investments , ready to deploy into the business. On top of this, S51 has produced cash from operations of S$49.65M in the last twelve months, leading to an operating cash to total debt ratio of 1.21%, signalling that S51’s current level of operating cash is not high enough to cover debt. This ratio can also be interpreted as a measure of efficiency for unprofitable businesses as traditional metrics such as return on asset (ROA) requires positive earnings. In S51’s case, it is able to generate 0.012x cash from its debt capital.
Can S51 pay its short-term liabilities?
Looking at S51’s most recent S$3.14B liabilities, it appears that the company has been able to meet these commitments with a current assets level of S$4.69B, leading to a 1.49x current account ratio. For Machinery companies, this ratio is within a sensible range since there’s sufficient cash cushion without leaving too much capital idle or in low-earning investments.
Is S51’s debt level acceptable?
Since total debt levels have outpaced equities, S51 is a highly leveraged company. This is not uncommon for a mid-cap company given that debt tends to be lower-cost and at times, more accessible. Though, since S51 is currently unprofitable, sustainability of its current state of operations becomes a concern. Maintaining a high level of debt, while revenues are still below costs, can be dangerous as liquidity tends to dry up in unexpected downturns.
Next Steps:
At its current level of cash flow coverage, S51 has room for improvement to better cushion for events which may require debt repayment. However, the company exhibits proper management of current assets and upcoming liabilities. I admit this is a fairly basic analysis for S51’s financial health. Other important fundamentals need to be considered alongside. You should continue to research Sembcorp Marine to get a more holistic view of the stock by looking at:
Future Outlook: What are well-informed industry analysts predicting for S51’s future growth? Take a look at our free research report of analyst consensus for S51’s outlook.
Valuation: What is S51 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 S51 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.
